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Dear Members,
The Reserve Bank of India announced the monetary and credit policy for the year 2003-04, on April 29, 2003. The policy covered a review of the macro-economic and monetary developments and stance of monetary policy with analytical and operational issues concerning monetary policy, interest rate, exchange rate, and reserves management. Accordingly, RBI announced certain further measures for strengthening the financial system, improving the credit delivery mechanism and developing technological and institutional infrastructure.
A few important measures announced, which are of particular interest to the exporting community are as under:
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Reduction in Bank Rate by 0.25 percentage point from 6.25% to 6.00%
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Reduction in Cash Reserve Ratio of banks from 4.75% to 4.50%
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Continuation of interest rates on Rupee export credit, at PLR minus 2.50 percentage points upto Oct 31, 2003
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Permitting banks to allow overseas investors making long term investments in India, to hedge their foreign exchange exposures in India, pending investment, by entering into forward sale contracts with banks in India
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Certain relaxations given to banks in respect of regulatory and prudential aspects to boost credit flow to the infrastructure sector
A few of the foreign exchange measures announced are as follows:
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Exporters are permitted to extend trade related loans / advances to overseas importers out of their exchange earners’ foreign currency (EEFC) balances without any ceiling.
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General permission is given to entities in the SEZs to undertake hedging transactions in the international commodity exchanges / markets to hedge their commodity price risk on import / export on “stand-alone” basis.
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A unit in DTA can receive foreign exchange out of the foreign currency account of a unit in SEZs which is permitted to be treated as eligible for credit to its EEFC account
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The limit for advance remittance without bank guarantee for import of goods into India raised
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Indian corporate having overseas offices permitted to acquire immovable property outside India for their business as also staff residential purposes with prior permission of RBI
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Considerable liberalization and simplification has been made in procedures for foreign exchange transactions and reporting system in several areas such as documentary evidence for imports, write-off of unrealized export bills etc
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Swap transactions enabling customers to hedge their foreign exchange exposures allowed without any limit
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Rebooking of cancelled contracts by customers is freely permitted in respect of all foreign exchange exposures falling due within one year.
Member-exporters may note the above financial sector reforms as well as foreign exchange mechanism announced by the RBI towards development and promotion of industrial growth.
As regards interest rates on Rupee export credit, both for pre-shipments and post-shipments, the RBI has issued Circular IECD No.18/04.02.01/2002-03 dated April 30, 2003. A copy of the same is appended herewith for your reference and record.
Thanking you,
Yours faithfully,
K Abdul Sattar Khan
Asst Director
Circular
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