......One additional measure I would like to suggest for strengthening the rupee is adoption of the foreign exchange (immunities) scheme of 1991, announced during the Gulf crisis. The source of funds, purpose and nature of remittances were then not subject to scrutiny under the exchange control regulations and direct tax laws. The only reported misuse of the scheme was conversion of the non-convertible rupee funds, particularly with reference to the special trade arrangement with the erstwhile Soviet Union. Timely action was taken by the RBI to plug the loophole to ensure that only remittances in free foreign exchange were eligible..........
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3 comments:
It may not be quite correct to say that only non-convertible rupee funds came under the Scheme. I have handled the operations of the scheme and a crore of rupees was received in favour of a former Chairman of a public sector bank !! There does not seem to be any justification to introduce such a scheme with the prevalence of a liberal foreign exchange environment for about two decades. Furthermore, I am not sure whether the situation is that desperate since the level of our foreign exchange reserves are considered quite decent and sufficient even by the Governor.
A.Chandramouliswaran.
orpogreThanks for the comments. I did not say that only non-convertible rupee funds came in under the scheme. I said that it was the only misuse of the scheme The information is taken from Vol 4 of History of Reserve Bank of India.
Our reserves are just equal to less than six days' transaction in the forex markets (including the NDF ones). RBI will lose its reserves if it intervenes to protect the rupee, It has already happened. There are two problems for worry, viz., .the high proportion of short-term debt (residual maturity) to the total external debt at around 44 per cent and the ratio of reserves to total debt is less than three-fourths unlike a few years ago when it was more than 100 per cent. The ratio of short-term debt (residual maturity) to reserves is 60 per cent. The reserve cover of imports and debt-service payments is around 6 months. The situation now and the one in 1991 differ only in degree and not in kind.
A. Seshan
Thanks for the comments of Seshan, a well informed person. Shri Seshan has differed from the Governor in regard to the adequacy of Reserves by giving relevant data. Even then, I am not sure whether the prevalence of the liberal foreign exchange environment for over two decades would justify the introduction of any Amnesty Scheme now. The introduction of such a Scheme even in 1991 was grossly unfair for the law abiding citizens.
A.Chandramouliswaran.
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