The Hindu Business Line : Liberalised remittance scheme: RBI prohibits some transactions

Mumbai May 10 The so-called Liberalised Remittance Scheme is liberal no more. After raising permissible remittance limit to $100,000 per person per annum, the Reserve Bank of India now expressly prohibited certain transactions.

It has now clarified that such remittances are allowed under the scheme only in respect of permissible current or capital account transactions.

All other transactions, the RBI has emphasised, that are otherwise not permissible under FEMA are not allowed.

Importantly, the RBI circular for the first time, expressly prohibits any remittances in the nature of margin or margin calls to overseas exchanges / overseas counter-party.

It is known that in the absence of any specific prohibition until recently, domestic players have been trading in international exchanges through brokers. With the RBI clarification, it is going to be tough for this business to continue.

Coming in addition to the RBI decision recently to permit domestic entities with exposure to specified base metals to hedge their price risk in international commodity exchanges, the latest move is seen as an attempt to curb non-commercial participation. Clearly, the RBI seems to favour, for the time being, only hedgers to use overseas exchanges.

This comes at a time when foreign brokers are approaching India brokers for tie-ups to introduce them to domestic clients interested in dealing in exchanges abroad, said the head of a brokerage house.

Recently, representative of a well-known foreign broking and advisory firm stated that one third of the volumes in the exchanges is accounted for by arbitrage activity happening between foreign and one of the Indian commodity exchanges.

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