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The Reserve Bank of India (RBI) has announced revisions to the Foreign Exchange Management Act (FEMA), 1999 regulations to encourage greater use of the Indian Rupee (INR) and local/national currencies for cross-border trade and investment transactions.
This move builds on earlier initiatives, including the introduction of the Special Rupee Vostro Account (SRVA) in July 2022 and Memorandums of Understanding (MoUs) with the central banks of the United Arab Emirates, Indonesia, and Maldives to facilitate cross-border settlements in local currencies. In December 2023, FEMA regulations were revised to allow cross-border transactions in all foreign currencies, including INR and local currencies of trading partners.
The latest changes aim to further simplify and liberalize the use of INR and local currencies for residents outside India. Key provisions include:
Overseas branches of Authorized Dealer banks can now open INR accounts for non-residents for settlement of permissible current and capital account transactions with residents in India.
Non-residents can use their repatriable INR account balances, such as Special Non-Resident Rupee Accounts (SNRRA) and SRVAs, to settle bona fide transactions with other non-residents.
Foreign investments, including FDI in non-debt instruments, can now be made using balances held in repatriable INR accounts by non-residents.
Indian exporters are permitted to open foreign currency accounts overseas for settlement of trade transactions, including receiving export proceeds and using these proceeds to pay for imports.
The revised Regulations and Directions have been issued by the RBI to implement these changes, reflecting its continued efforts to enhance the global use of the Indian Rupee and streamline cross-border transactions.
[RBI]