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The Reserve Bank of India has liberalised the amount of forward contracts that importers can book. In a notification on Tuesday, the RBI has increased the amount of forward contracts importers can book to 50 per cent of their average three years import turnover, or previous years actual import turnover, whichever is higher. The earlier limit for such contracts was 25 per cent.
The RBI said, “On a review of the evolving market conditions and with a view to providing importers with greater flexibility in hedging facility, it has been decided to allow importers to book forward contracts, under the past performance route, up to 50 per cent of the eligible limit. Importers who have already booked contracts up to previous limit of 25 per cent in the current financial year, shall be eligible for difference arising out of the enhanced limits. All other operational guidelines, terms and conditions shall apply mutatis mutandis.”
The step comes in the backdrop of improving macro fundamentals as India’s current account deficit, a key measure of external vulnerability (when imports of goods and services/transfers are greater than corresponding exports) dropped to $1.2 billion in the fourth quarter of 2013-14 compared to $18 billion in the same period in the previous year.
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