Daily Current Affairs : 21-January-2025

Recently, the Reserve Bank of India (RBI) has made significant changes to the Foreign Exchange Management Act (FEMA) of 1999. These changes aim to promote the use of the Indian Rupee (INR) in international transactions. The RBI’s new move comes at a time when the Indian Rupee has been facing depreciation pressures. By liberalizing FEMA regulations, the RBI hopes to stabilize the currency and encourage its use across borders, increasing its presence in global financial markets.

Key Changes Made in FEMA Regulations by RBI

The RBI has introduced several changes to enhance the role of the Indian Rupee in international trade and investment. These changes focus on easing cross-border transactions and encouraging the use of INR. Below are the key changes:

  • Opening INR Accounts for Non-Residents
    • Overseas branches of Authorized Dealer banks can now open INR accounts for non-residents.
    • This allows non-residents to make payments and settlements for both current and capital account transactions in Indian Rupees.
  • Repatriable INR Accounts
    • Non-residents can use their repatriable INR accounts, like Special Non-Resident Rupee Accounts (SNRR) and Special Rupee Vostro Accounts (SRVA), to settle transactions with other non-residents.
    • This facilitates smoother cross-border transactions in INR.
  • Foreign Investment in INR Accounts
    • Non-Resident Indians (NRIs) can use the balances in their INR accounts to make foreign investments.
    • This includes making Foreign Direct Investments (FDI) in non-debt instruments, thus strengthening the INR’s role in global investment flows.
  • Foreign Currency Accounts for Exporters
    • Indian exporters can now open accounts in foreign currencies outside India.
    • These accounts can be used to receive export proceeds and pay for imports, simplifying international trade for exporters.
Important Points
  • RBI liberalizes FEMA regulations to promote the use of the Indian Rupee (INR) in global transactions.
  • INR accounts for non-residents: Overseas branches of Authorized Dealer banks can open INR accounts for non-residents to settle transactions in INR.
  • Repatriable INR accounts: Non-residents can use Special Non-Resident Rupee Accounts (SNRR) and Special Rupee Vostro Accounts (SRVA) to settle cross-border transactions.
  • Foreign investments: NRIs can use INR account balances to make Foreign Direct Investments (FDI) in non-debt instruments, boosting the INR’s role in global investment.
  • Foreign currency accounts for exporters: Indian exporters can now open foreign currency accounts abroad to receive export payments and pay for imports.
Why In News

The Reserve Bank of India (RBI) has liberalized norms under the Foreign Exchange Management Act (FEMA) of 1999 to promote the use of the Indian Rupee (INR) in cross-border transactions, aiming to enhance the currency’s global acceptance and reduce dependency on foreign currencies in international trade.

MCQs about RBI’s Efforts to Globalize the Indian Rupee
  1. What is the primary objective of the RBI’s liberalization of FEMA regulations?
    A. To reduce inflation in India
    B. To stabilize the Indian Rupee (INR) and promote its use in international transactions
    C. To increase foreign currency reserves
    D. To promote domestic trade in India
    Correct Answer: B. To stabilize the Indian Rupee (INR) and promote its use in international transactions
    Explanation: The RBI has made changes to FEMA to help stabilize the INR and encourage its use in cross-border transactions, aiming to increase the INR’s global presence.
  2. What new facility has been introduced for non-residents by the RBI?
    A. They can now open savings accounts in Indian banks.
    B. Overseas branches of Authorized Dealer banks can open INR accounts for non-residents.
    C. They can make payments only in foreign currencies.
    D. They are restricted from using INR for transactions.
    Correct Answer: B. Overseas branches of Authorized Dealer banks can open INR accounts for non-residents.
    Explanation: The RBI has allowed non-residents to open INR accounts in overseas branches of Authorized Dealer banks to facilitate cross-border transactions in INR.
  3. What type of foreign investments can Non-Resident Indians (NRIs) now make using their INR account balances?
    A. Only in government bonds
    B. Foreign Direct Investments (FDI) in non-debt instruments
    C. Investments in foreign currencies
    D. Real estate investments within India
    Correct Answer: B. Foreign Direct Investments (FDI) in non-debt instruments
    Explanation: NRIs can use their INR account balances to make FDI in non-debt instruments, which enhances the INR’s role in global investments.
  4. What new facility has been introduced for Indian exporters under the RBI’s new regulations?
    A. They can open accounts in foreign currencies abroad to settle trade transactions.
    B. They can now only receive payments in INR.
    C. They can only export to countries with trade agreements with India.
    D. They are allowed to borrow foreign currency from other countries.
    Correct Answer: A. They can open accounts in foreign currencies abroad to settle trade transactions.
    Explanation: Indian exporters are now permitted to open foreign currency accounts abroad to receive export payments and pay for imports, simplifying international trade.

Boost up your confidence by appearing our Weekly Current Affairs Multiple Choice Questions

Loading