Both the steps, taken in a matter of two days, are aimed at curbing the outflow of funds and on the other hand enhancing inward remittances.
Earlier, Indians could only receive up to Rs 1 lakh per annum without notifying the authorities.
THE HOME Ministry Saturday amended certain provisions of the Foreign Contribution (Regulation) Act (FCRA) allowing Indians to receive up to Rs 10 lakh annually from their relatives abroad.
Earlier, they could receive up to Rs 1 lakh per annum without notifying the authorities. This comes a day after the government enhanced the import duty on gold import from 7.5 per cent to 12.5 per cent in a bid to discourage import of gold that leads to increase in trade deficit and puts pressure on the currency and forex reserves.
What will these steps lead to?
Both the steps, taken in a matter of two days, are aimed at curbing the outflow of funds and on the other hand enhancing inward remittances. Experts say that an increase in the limit of remittances by relatives from Rs 1 lakh to Rs 10 lakh will lead to an increase in inflow of funds into India which will stabilise the forex reserves and also the currency.
Similarly, an increase in import duty on gold from 7.5 per cent to 12.5 per cent will discourage gold import as it will result in increase in the price of gold in India. An increase in inflow of funds and reduction in outflow of funds on account of gold imports will help stabilise the currency, forex reserves and reduce the trade deficit that widened significantly in the months of April and May 2022.
What is the concern?
The trade deficit in the month of April and May 2022 stood at a high of $20.1 billion and $24.6 billion respectively making an aggregate of $44.7 billion in two months. By comparison the trade deficit in April and May 2021 stood at $21.8 billion. While petroleum import is leading to a rise in the same, gold too contributed significantly to it. In May 2022, gold imports stood at $6 billion as against gold imports of $670 million in the same month last year. Experts feel that an increase in import duty on gold will lead to increase in cost of import and discourage its import and consumption.
Is there a concern on forex reserves?
Even as the forex reserves are strong, there is a concern over its decline. While India had forex reserves of $642 billion at the end of October 2021, as on June 24, 2022 it stood at $593 billion. So, there has been a decline of almost $50 billion in forex reserves over the last eight months. Experts say that even in the forward market the forex reserves have come down by almost $20 billion in the same period. “If the two are combined the overall reduction in forex reserves is $70 billion in around 8 months and that is a big cause of concern. The government needs to arrest the outflow of funds and increase inflow of funds to stabilise the forex reserves and also stabilise the currency,” said the CEO of a financial services firm.