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Foreign Exchange Department
With the introduction of the Foreign Exchange Management Act
1999, (FEMA) with effectfrom June 1, 2000, the objective of the
Foreign Exchange Department has shifted from
conservation of foreign exchange to "facilitating external trade
and payment and promotingthe orderly development and maintenance of
foreign exchange market in India".
y The new Act has brought about structural changes in the
exchange control
administration. Regulations have been framed for dealing with
various types of
transactions. These regulations are transparent and have
eliminated case-by-case
approvals.
y All current account transactions are free from restrictions
except
o 8 transactions prohibited by the Government of India.
o 11 transactions which require prior permission of the
Government of India and
o 16 transactions on which indicative limits are fixed by the
Government and
release of foreign exchange beyond those limits requires
permission from the
Reserve Bank. All Regional Offices of the Department have in
turn been
authorised to release exchange for such transactions.
y For capital account transactions, the Reserve Bank regulations
provide for generalpermissions/automatic routes for investments in
India by non-residents, investments
overseas by residents and borrowings abroad, etc.y The
Department ensures timely realisation of export proceeds and
reviews, on a
continuous basis, the existing rules in the light of suggestions
received from varioustrade bodies and exporters' fora.
y The Department collects data relating to forex transactions
from authorised dealers ona daily basis for exchange rate
management and on a fortnightly basis for monthly
quick estimates of balance of payments and quarterly balance of
paymentscompilation.
y The Department lays down policy guidelines for risk management
relating to forex
transactions in banks.
y The Department is also entrusted with the responsibility of
licensing banks/money
changers to deal in foreign exchange and inspecting them.
y There is a "Standing Consultative Committee on Exchange
Control" consisting of
representatives from various trade bodies and authorised dealers
which meets twice a
year and makes recommendations for policy formulation.
y With a view of further improving facilities available to NRIs
and removing irritants,
the Department is also engaged, on an ongoing basis, in
reviewing and simplifying the
procedures and rules.
Manager of Foreign ExchangeWith the transition to a market-based
system for determining theexternalvalue of the Indian rupee, the
foreign exchange market in India gained
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importance in the early reform period. In recent years, with
increasingintegration of the Indian economy with the global economy
arising fromgreater trade and capital flows, the foreign exchange
market hasevolved asa key segment of the Indian financial
market.
Our ApproachThe Reserve Bank plays a key role in the
regulationand development of the foreign exchange market andassumes
three broad roles relating to foreign exchange: Regulating
transactions related to the external sectorand facilitating the
development of the foreignexchange market Ensuring smooth conduct
and orderly conditions inthe domestic foreign exchange market
Managing the foreign currency assets and gold
reserves of the country
Our ToolsThe Reserve Bank is responsible for administration of
theForeign Exchange Management Act,1999 and regulatesthe market by
issuing licences to banks and other selectinstitutions to act as
Authorised Dealers in foreignexchange. The Foreign Exchange
Department (FED) isresponsible for the regulation and development
of themarket.On a given day, the foreign exchange rate reflects
thedemand for and supply of foreign exchange arisingfrom trade and
capital transactions. The RBIs FinancialMarkets Department (FMD)
participates in the foreignexchange market by undertaking sales /
purchases offoreign currency to ease volatility in periods of
excessdemand for/supply of foreign currency.The Department of
External Investments andOperations (DEIO) invests the countrys
foreignexchange reserves built up by purchase of foreign
currency from the market. In investing its foreignassets, the
Reserve Bank is guided by three principles:safety, liquidity and
return.Looking AheadThe challenge now is to liberalise and develop
the foreignexchange market, with an eye toward ushering in
greatermarket efficiency while ensuring financial stability in
anincreasingly global financial market environment. Withcurrent
account convertibility achieved in 1994, the keyfocus is now on
capital account management.The Department of External Investments
& Operations manages
a multi-currency multi-instrument portfolio of foreign
currencyassets. A well-equipped dealing room executes
transactions.
In investing its foreign assets, the Reserve Bank
