In a significant push to enhance the global usage of the Indian Rupee (INR) and local currencies for cross-border transactions, the Reserve Bank of India (RBI) has liberalised key regulations under the Foreign Exchange Management Act (FEMA), 1999.
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These reforms are designed to strengthen India’s trade and investment framework, reduce reliance on dominant foreign currencies like the US Dollar, and bolster the INR's global standing.
Highlights of the New FEMA Reforms
1. INR Accounts for Overseas Residents:
Overseas branches of Authorised Dealer (AD) banks can now open INR accounts for non-residents. These accounts will facilitate current and capital account transactions with Indian residents, streamlining cross-border settlements.
2. Transactions Between Non-Residents in INR:
Non-residents can now use balances in their repatriable INR accounts, including Special Non-resident Rupee Accounts (SNRAs) and SRVAs, to conduct transactions with other non-residents. This opens new avenues for INR-based trade and settlements outside India.
3. Support for Foreign Investment:
Balances in repatriable INR accounts can now be used for foreign investments, including Foreign Direct Investment (FDI) in non-debt instruments, providing a new channel for Rupee-based investments in India.
4. Flexibility for Exporters:
Indian exporters are now permitted to open foreign currency accounts overseas to receive export proceeds and utilise these funds for paying for imports. This move enhances operational flexibility and reduces currency conversion costs.
The latest announcement follows a series of measures initiated by the RBI in July 2022, including the introduction of Special Rupee Vostro Accounts (SRVAs), which allowed foreign banks to establish Rupee accounts with Indian banks.
This was further complemented by Memorandums of Understanding (MoUs) with central banks of the UAE, Indonesia, and the Maldives, enabling greater bilateral trade in local currencies.
These measures are a step towards internationalising the Indian Rupee and promoting it as a viable currency for global trade.
