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Thursday, Jan 27, 2005

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Too many dollars? Easy come, easy go

Sudhanshu Ranade

Chennai , Jan. 26

WHEN large foreign exchange inflows come in too fast, the Reserve Bank of India steps in to buy the surplus in order to avoid jerks in the rate of exchange.

This requires an injection of rupees into the market in lieu of the amount of foreign exchange withdrawn from it. This, in turn, needs to be sorted out, as otherwise inflationary pressures would arise for the domestic economy.

The main method of dealing with it hitherto has been to sell bonds/government securities to mop up surplus liquidity. However, forex inflows in recent years have been so large as to seriously deplete the stock of issuable bonds/securities. Therefore, it was thought necessary to supplement this way of mopping up excess liquidity by prepaying high-cost debt, for example, and by relaxing norms for the release of foreign exchange against rupees on both the current and capital accounts.

As far as the release of foreign exchange is concerned, the present position is that authorised dealers of foreign exchange are allowed to release up to $100,000 for medical treatment abroad, overseas employment, emigration, maintenance of relatives abroad, etc., without any reference to the RBI. The limit for remittance towards consultancy services purchased from outside India has been raised from $100,000 to $1 million a project.

Repatriation of sale proceeds of immovable property acquired by NRIs or PIOs (persons of Indian origin) out of rupee resources has been allowed within an overall limit of $1 million a calendar year provided the property is held by them for a period of not less than 10 years. This facility is available even if the property is held for a shorter period provided the property and sale proceeds are held cumulatively for a period not less than 10 years.

Repatriation of sale proceeds of assets by NRIs/PIOs and foreign nationals by way of inheritance/legacy has been allowed within the overall annual limit of $1 million, subject to tax compliance.

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