The Home Ministry on Saturday amended certain provisions of the Foreign Contribution (Regulation) Act (FCRA), allowing Indians to receive up to Rs 10 lakh annually from their relatives abroad.
Earlier, they could get up to Rs 1 lakh per year without informing the authorities. This comes a day after the government raised import duty on gold imports from 7.5 per cent to 12.5 per cent to discourage gold imports, widening the trade deficit and putting pressure on currency and foreign exchange reserves.
What will happen with these steps?
Both the steps taken within two days are aimed at curbing the outflow of funds and on the other hand increasing inward remittances. Experts say that raising the limit of remittances by relatives from Rs 1 lakh to Rs 10 lakh will increase inflow of money into India which will also stabilize foreign exchange reserves and currency.
Similarly, increasing the import duty on gold from 7.5 per cent to 12.5 per cent will discourage import of gold as it will increase the price of gold in India. The increase in money inflows and reduction in outflow of money due to gold imports will help stabilize the currency, forex reserves and reduce the trade deficit which widened significantly in the months of April and May 2022.
What is worry?
The trade deficit for the months of April and May 2022 stood at a high of $20.1 billion and $24.6 billion, respectively, taking the total to $44.7 billion in the two months. In comparison, the trade deficit in April and May 2021 stood at $21.8 billion. While petroleum imports are increasing, gold has also contributed significantly. In May 2022, gold imports stood at $6 billion, compared to $670 million in gold imports in the same month last year. Experts believe that an increase in import duty on gold will increase the cost of imports and discourage its import and consumption.
Are there any concerns over forex reserves?
Despite the strengthening of foreign exchange reserves, there is concern about its decline. While India’s foreign exchange reserves stood at $642 billion at the end of October 2021, it was $593 billion as of June 24, 2022. Therefore, the foreign exchange reserves have declined by about $50 billion in the last eight months. Experts say that in the same period, there has been a decrease of about $ 20 billion in foreign exchange reserves in the futures market. “If the two are combined, the total shortfall in forex reserves in about 8 months is $70 billion and this is a big cause for concern. The CEO of a financial services firm said, the government needs to stabilize the foreign exchange reserves and stop the outflow of money and increase the inflow of money to stabilize the currency.