The foreign trade of India is guided by the Export-Import policy of the Government of India.
Regulated by The Foreign Trade Development and Regulation Act 1992.
Exim policy contain various policy decisions with respect to import and exports from the country.
Exim Policy is prepared and announced by the central government.
Exim Policy of India aims to developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payment position.
General Objectives of Exim Policy
To establish the framework for globalization.
To promote the productivity competitiveness of Indian Industry.
To Encourage the attainment of high and internationally accepted standards of quality.
To augment export by facilitating access to raw material,intermediate, components, consumables and capital goods from the international market.
To promote internationally competitive import substitution and self-reliance.
Highlights of the New Foreign Trade Policy
1.Special Focus Initiatives: Semi-urban and Rural Area
2.Agriculture : Vishesh Krishi Upaj Yojana and Agri Export Zones
3.Handlooms and Handicrafts: Mark under Market Access Initiatives Scheme and Proposed to Start new SEZ.
4.Gems and Jewellery: Import of gold of 18 carat and above has been permitted under the replenishment scheme
5.Leather and Footwear : Duty free import entitlement of specified items shall be 5% of FOB value of exports during the preceding year
Export Promotion Schemes
1.Assistance to States for Infrastructure Development of Exports [ASIDE]
2.Market Access Initiative [MAI]
3.Marketing Development Assistance [MDA]
4.Towns of Export Excellence
5.Target Plus Scheme
6.Served from India Scheme
7.Service Export Promotion Council
8.New Status Holder Categorization
9.Board of Trade: The role is to advising government on relevant issues connected with Foreign Trade Policy.
Implications of The Foreign Trade
Implications on Indian Economy:
This policy propose to simplify procedures and develop technology and infrastructure.
Implications on Agriculture:
Special Agricultural Produce Scheme has been introduced for promoting the export of fruits, vegetables, flowers, and their value added products.
Implications on Handlooms and Handicraft:
Establishment of Handicraft SEZ and Handicraft Export Promotion Council would promote development of Handloom and Handicraft Industry.
Implications on Gem and Jewellery Sector :
1.This is special thrust area in this policy.
2.Duty free imports of other inputs would give a further boost to this sector.
Implications on Leather and Footwear Industry :
1.Duty free import as a specified percentage of exports.
2.Exemption on customs duty on equipment for effluent treatment plants would help promoting export form this sector.
Implications on Service Industry :
1.An exclusive service promotion council has been set up in order to map the opportunities for key services in key market.
2.Develop strategic market access programmes like brand building in co-ordination with sectoral players and recognize nodal bodies of the service industry.
Annual Supplement to Foreign Trade Policy
Highlights of the Supplement:
1.Inter State Trade Council : To engage the State Government in providing an enabling environment for boosting international trade, by setting up an Inter State Trade Council.
2.Removal of Export Cess : Proposed to abolish cess on export of all agricultural and plantation commodities levied under various Commodity Board Acts.
3.Export Promotion Capital Goods Scheme (EPCG) : This scheme is extended to Agricultural sector, SSI sector, Retail Sectors in order to promote exports from them.
4.Service Export : To upgrade infrastructure in the service related companies.
5.Agri Export : Benefits under ‘Vishesh Krishi Upaj Yojana’ have been extended to exports of poultry and dairy products in addition to export of flowers, fruits, vegetables and their value added products.
6.Package for Marine Sector : Duty free import of specified specialized chemicals and flavoring oils as per a defined list shall be allowed to the extent of 1% of FOB value of preceding financial years export.
7.Advance Licensing Scheme : The Scope of Advance License for annual requirement has been extended to all categories of exporters having past export performance.
8.Duty Free Replenishment Certificate : Brass scrap, Additives, paper board, and dye stuff have been removed from the list of items prescribed for import under DFRC.
9.Procedural Simplification : Proposed to simplify procedures and reduce the documentation requirements so as to reduce the transaction cost of the exporters and thereby increase their competitiveness.
10.EDI Initiatives : DGFT shall introduce an automated electronic system for filing, retrieval and authentication of documents based on agreed protocols and message exchange with other authorities such including Customs and banks.
Monday, March 28, 2011
Public Sector Enterprises
The Industrial Policy Resolution of 1956 gave the public sector a strategic role in the Indian economy.
Public enterprises or public sector refers to that sector which is owned and
managed by the central government or the state government or a body set up
by the government to direct the undertaking in the public interest.
Forms or Types of Public Enterprises:
i. Departmental undertakings : Railways, Defence, etc
ii. Statutory Corporations : LIC, the Indian Airlines Corporations, etc
iii. Government Companies : Heavy Electricals Ltd, HMT Ltd, etc
iv. Holding Company : Steel Authority of India Ltd.
Objectives of Public Sector:
1.To promote rapid economic development through creation and expansion of Infrastructure
2.To generate financial resources for development
3.To create employment opportunities
4.To promote redistribution of wealth and income
5.To promote balanced regional growth
6.To promote exports and import substitution
7.To encourage SSIs
Role of Public Sector in Indian Economy:
•Capital Formation
•Development of Infrastructure
•Development of Defence Industries
•Development of Basic and Key industries:
•Iron and steel, cement, etc
•Development of Power projects
•Development of Banking and Insurance
•Balanced Regional development
•Balanced Economic Growth
•Strong Industrial Base
•Economies Of Scale
•Removal of Regional Disparities
•Import Substitution
•Export Promotion
•Expansion of Employment Opportunities
•Source of Revenue to the Government
•Saving in Foreign Exchange
•Better Allocation and Utilisation of Resources
•Diversity of Projects
Problems and Shortcomings of the Public Sector:
1.Mounting Losses
2.Price Policy of Public Enterprises
3.Delay in Completion of the Projects
4.Increase in Costs of Construction
5.Poitical factors influence decision about Location
6.Over-Capitalization
7.Under-Utilization of Capacity
8.Unfavourable Input-output Ratio
9.Use of Manpower Resources in excess of actual requirements
10.Faulty Planning and Controls
11.Inefficient Management
12.Labour Problem resulting in Strikes and Lockouts
13.Higher Capital Intensity -- Low Employment Generation
14.Shortage of Raw materials and Power
Remedies / Measures to be taken for the Performance of Public Sector:
1.Reduction in Unproductive Expenditure
2.Utilisation of Installed Capacity
3.Better Utilisation of manpower and materials
4.Proper Planning and Control
5.Improvement of Efficiency of Management
6.Suitable Price Policy
7.Making them Autonomous
8.Improvement of Industrial Relations
9.Motivation of Staff and Workers
Public enterprises or public sector refers to that sector which is owned and
managed by the central government or the state government or a body set up
by the government to direct the undertaking in the public interest.
Forms or Types of Public Enterprises:
i. Departmental undertakings : Railways, Defence, etc
ii. Statutory Corporations : LIC, the Indian Airlines Corporations, etc
iii. Government Companies : Heavy Electricals Ltd, HMT Ltd, etc
iv. Holding Company : Steel Authority of India Ltd.
Objectives of Public Sector:
1.To promote rapid economic development through creation and expansion of Infrastructure
2.To generate financial resources for development
3.To create employment opportunities
4.To promote redistribution of wealth and income
5.To promote balanced regional growth
6.To promote exports and import substitution
7.To encourage SSIs
Role of Public Sector in Indian Economy:
•Capital Formation
•Development of Infrastructure
•Development of Defence Industries
•Development of Basic and Key industries:
•Iron and steel, cement, etc
•Development of Power projects
•Development of Banking and Insurance
•Balanced Regional development
•Balanced Economic Growth
•Strong Industrial Base
•Economies Of Scale
•Removal of Regional Disparities
•Import Substitution
•Export Promotion
•Expansion of Employment Opportunities
•Source of Revenue to the Government
•Saving in Foreign Exchange
•Better Allocation and Utilisation of Resources
•Diversity of Projects
Problems and Shortcomings of the Public Sector:
1.Mounting Losses
2.Price Policy of Public Enterprises
3.Delay in Completion of the Projects
4.Increase in Costs of Construction
5.Poitical factors influence decision about Location
6.Over-Capitalization
7.Under-Utilization of Capacity
8.Unfavourable Input-output Ratio
9.Use of Manpower Resources in excess of actual requirements
10.Faulty Planning and Controls
11.Inefficient Management
12.Labour Problem resulting in Strikes and Lockouts
13.Higher Capital Intensity -- Low Employment Generation
14.Shortage of Raw materials and Power
Remedies / Measures to be taken for the Performance of Public Sector:
1.Reduction in Unproductive Expenditure
2.Utilisation of Installed Capacity
3.Better Utilisation of manpower and materials
4.Proper Planning and Control
5.Improvement of Efficiency of Management
6.Suitable Price Policy
7.Making them Autonomous
8.Improvement of Industrial Relations
9.Motivation of Staff and Workers
Legal Environment
The government’s sets the legal framework within which business operates.
Legislations defining property and business organizations, laws of contracts and
bankruptcy, mutual obligations of labour and management and a multitude of laws and regulations constraining the way business activities are carried out constitute legal environment of business.
Economic legislations, as these, are often called, have a direct bearing on the business.
Economic legislations can be classified into two categories:
Legislations which have a facilitatory role.
Ex: The Contract Act provides the rules for systematic exchange transactions.
Legislations which are restrictive in nature.
Ex: MRTP Act and FERA
Legislations defining property and business organizations, laws of contracts and
bankruptcy, mutual obligations of labour and management and a multitude of laws and regulations constraining the way business activities are carried out constitute legal environment of business.
Economic legislations, as these, are often called, have a direct bearing on the business.
Economic legislations can be classified into two categories:
Legislations which have a facilitatory role.
Ex: The Contract Act provides the rules for systematic exchange transactions.
Legislations which are restrictive in nature.
Ex: MRTP Act and FERA
COMPETITION ACT
What is competition in the market?
In common parlance, competition in the market means
1.sellers striving independently for buyers’ patronage to maximize profit or other business objectives.
2.buyer prefers to buy a product at a price that maximizes his benefits whereas the seller prefers to sell the product at a price that maximizes his profit.
Why do we need competition in the market ?
Competition
1.makes enterprises more efficient and offers wider choice to consumers at lower prices.
2.ensures optimum utilization of available resources.
3.enhances consumer welfare since consumers can buy more of better quality products at lower prices.
4.beneficial for the consumers, producers / sellers and finally for the whole society since it induces economic growth.
What is meant by unfair competition?
Unfair competition means adoption of practices such as:
1.collusive price fixing,
2.deliberate reduction in output in order to increase prices,
3.creation of barriers to entry,
4.allocation of markets,
5.tie-up sale ,
6.predatory pricing,
7.discriminatory pricing,
What constitutes competition policy?
Competition policy is defined as those Government measures that affect the behavior of enterprises and structure of the industry with the view to promote efficiency and maximize welfare.
There are two elements of competition policy:-
First, a set of policies, such as liberalized trade policy, relaxed FDI policy, de-regulation, etc., that enhance competition in the markets.
Second, legislation to prevent anti-competitive practices with minimal government intervention.
When was the competition law enacted in India?
1.The Monopolies & Restrictive Trade Practices Act, 1969 is the first enactment to deal with competition issues and came into effect on 1st June 1970.
2.The Government appointed a committee in October 1999 to examine the existing MRTP Act for shifting the focus of the law from curbing monopolies to promoting competition and to suggest a modern competition law. Pursuant to the recommendations of this committee, the Competition Act, 2002, was enacted on 13th January 2003.
3.It provides for different notifications for making different provisions of the Act effective including repeal of MRTP Act and dissolution of the MRTP Commission.
Whether all provisions of the Competition Act have been notified?
Certain provisions such as those relating to establishment of the Commission, appointment of Chairperson and Members, appointment of staff, undertaking of competition advocacy have been notified.
Other provisions of the Act are yet to be notified such as those relating to adjudication of anti-competitive practices and regulation of combinations.
What are the objectives of the Competition Act?
The objectives of the Competition Act are
1.to prevent anti-competitive practices,
2.promote and sustain competition,
3.protect the interests of the consumers
4.ensure freedom of trade.
How would the objectives of the Act be achieved?
The objectives of the Act are sought to be achieved through the instrumentality of the Competition Commission of India (CCI) which has been established by the Central Government with effect from 14th October, 2003.
What are the functions of CCI?
1.CCI shall prohibit anti-competitive agreements and abuse of dominance, and regulate combinations (merger or amalgamation or acquisition) through a process of enquiry.
2.It shall give opinion on competition issues on a reference received from an authority established under any law (statutory authority)/Central Government.
3.CCI is also mandated to undertake competition advocacy, create public awareness and impart training on competition issues.
What is an “agreement” under the Competition Act?
An agreement includes any arrangement, understanding or concerted action entered into between parties. It need not be in writing or formal or intended to be enforceable in law.
What is an anti-competitive agreement?
An anti-competitive agreement is an agreement having appreciable adverse effect on competition. Anti-competitive agreements include:-
1.agreement to limit production & supply
2.agreement to allocate markets
3.agreement to fix price
4.bid rigging or collusive bidding
5.conditional purchase/sale (tie-in arrangement)
6.exclusive supply/distribution arrangement
7.resale price maintenance
8.refusal to deal
In common parlance, competition in the market means
1.sellers striving independently for buyers’ patronage to maximize profit or other business objectives.
2.buyer prefers to buy a product at a price that maximizes his benefits whereas the seller prefers to sell the product at a price that maximizes his profit.
Why do we need competition in the market ?
Competition
1.makes enterprises more efficient and offers wider choice to consumers at lower prices.
2.ensures optimum utilization of available resources.
3.enhances consumer welfare since consumers can buy more of better quality products at lower prices.
4.beneficial for the consumers, producers / sellers and finally for the whole society since it induces economic growth.
What is meant by unfair competition?
Unfair competition means adoption of practices such as:
1.collusive price fixing,
2.deliberate reduction in output in order to increase prices,
3.creation of barriers to entry,
4.allocation of markets,
5.tie-up sale ,
6.predatory pricing,
7.discriminatory pricing,
What constitutes competition policy?
Competition policy is defined as those Government measures that affect the behavior of enterprises and structure of the industry with the view to promote efficiency and maximize welfare.
There are two elements of competition policy:-
First, a set of policies, such as liberalized trade policy, relaxed FDI policy, de-regulation, etc., that enhance competition in the markets.
Second, legislation to prevent anti-competitive practices with minimal government intervention.
When was the competition law enacted in India?
1.The Monopolies & Restrictive Trade Practices Act, 1969 is the first enactment to deal with competition issues and came into effect on 1st June 1970.
2.The Government appointed a committee in October 1999 to examine the existing MRTP Act for shifting the focus of the law from curbing monopolies to promoting competition and to suggest a modern competition law. Pursuant to the recommendations of this committee, the Competition Act, 2002, was enacted on 13th January 2003.
3.It provides for different notifications for making different provisions of the Act effective including repeal of MRTP Act and dissolution of the MRTP Commission.
Whether all provisions of the Competition Act have been notified?
Certain provisions such as those relating to establishment of the Commission, appointment of Chairperson and Members, appointment of staff, undertaking of competition advocacy have been notified.
Other provisions of the Act are yet to be notified such as those relating to adjudication of anti-competitive practices and regulation of combinations.
What are the objectives of the Competition Act?
The objectives of the Competition Act are
1.to prevent anti-competitive practices,
2.promote and sustain competition,
3.protect the interests of the consumers
4.ensure freedom of trade.
How would the objectives of the Act be achieved?
The objectives of the Act are sought to be achieved through the instrumentality of the Competition Commission of India (CCI) which has been established by the Central Government with effect from 14th October, 2003.
What are the functions of CCI?
1.CCI shall prohibit anti-competitive agreements and abuse of dominance, and regulate combinations (merger or amalgamation or acquisition) through a process of enquiry.
2.It shall give opinion on competition issues on a reference received from an authority established under any law (statutory authority)/Central Government.
3.CCI is also mandated to undertake competition advocacy, create public awareness and impart training on competition issues.
What is an “agreement” under the Competition Act?
An agreement includes any arrangement, understanding or concerted action entered into between parties. It need not be in writing or formal or intended to be enforceable in law.
What is an anti-competitive agreement?
An anti-competitive agreement is an agreement having appreciable adverse effect on competition. Anti-competitive agreements include:-
1.agreement to limit production & supply
2.agreement to allocate markets
3.agreement to fix price
4.bid rigging or collusive bidding
5.conditional purchase/sale (tie-in arrangement)
6.exclusive supply/distribution arrangement
7.resale price maintenance
8.refusal to deal
New Economic Policy (NEP)
What is it?
in 1990-91-, Govt. was very low on cash, so they changed their economic policy, that's called LPG.
Why should I learn it?
1. Economy worth 100+M in Mains GS
2. International Relations worth 100+ Marks (GS paper 2 in Mains)
Whenever You want to understand india's Diplomatic relations with other nations, you've to see it pre & post cold war. same way
India's economic relation with others, you need to understand from pre & post LPG phase. that's why LPG is imp for international relation questions as well.
Why Govt. was low on cash?
1. First Gulf War = High crude oil prices
2. Fall of USSR (no one to help/ protect us)
3. Loss making Public sector undertakings (PSU)
4. Govt. was investing heavily in PSU, Development schemes, defence sectors.
5. these areas need lot money and it takes long gestation period after you see the recovery / benifit of that invested money.
6. + the usual Licence-Quota-Inspector raj. (explained later)
= Govt. has to borrow a lot from inside and outside the nation to run itself.
= We were so much out of money, that we could buy only 7 day's crude oil for the nation !
How did we get through it.
* We borrowed 7 billion Dollars from IBRD (Internation board of reconstruction & Development ) aka world bank
* But for that, we had to obey World bank's conditions - they wanted us to change our economic policies.
* thus came the LPG.
so LPG is one thing?
No its 3 different things
Liberalization
what does that mean?
* to put end on rules / Regulation to control economy
* Open up various sectors of Economy
wasn't our economy opened before LPG?
* No we had Licence-Quota-Inspector Raj.
what is Licence Raj?
* you want to open a new mobile phone making company you need to get licence from Govt..
Quota Raj
.
* even after you get the licence, you can't produce as many phones as you wish, you'll be given a quota
* say 1000 mobiles per month - you can't manufacture more than that.
Inspector Raj
* there will be a factory inspector, who will come and check how many phones you actually made,
* he gives you the certification only then you can take out your phones from warehouse to retail shops!
so when all 3 combine -its heavy delay, red tape and corruption.
Methods for Liberalisation .(Govt. used following)
End of Licence Raj (Libzn Method #1)
no more licence required for
* starting factory
* closing it or,
* deciding amount of production (= end of Quota Raj)
However you still need license for starting
1. Wine
2. Cigar
3. Hazardous Chem
4. Explosive
5. Drug-Pharma
6. Electronic
7. Aerospace
Dereservation of many things produced by Small scale industries
sectors reserved for PSU -are now only limited to
1. Defence
2. Atom
3. Railways
= means pvt players can't open machine gun making factory.
Finacial Sector Reformed (Libzn method #2)
RBI role reduced from regulator to facilitator
Financial institutions (Stock market, Forex market etc) can take decision with out consulting RBI like
1. freedom to setup new Branches
2. generate resources from India- Abroad
Result = introduction of
1. pvt Sector Banks,
2. Foreign Institutionl investors
3. Merchant Bankers
4. Mutual / Pension Funds
Tax Reform (Libzn method #3)
* Earlier income tax was high, so people used every trick to evade it.
* Now tax rates were reduced, more people came in Tax net.
* Method to collect indirect Taxes - also simplified.
Forex Reform (Libzn method #3)
* to solve BOP Crisis
* Rupee was Devalued = increased inflow of Forex
* Market to Determine Exchange Rate based on supply & demand of foreign currency. (earlier RBI was doing that)
Trade investment reform
* Quota barriers removed
* you don't have to pay high taxes on imported luxery items (gold watches / perfumes) like you had to do previously.
* no more import licence required except for Harardous materials.
Privatisation ( the 'P' of LPG)
Means Sheeding of Ownership / Management of Govt. owned companies.
How? = by Disinvestment = Privatization of PSU
by Govt. ,Selling of part of Equity to Public
Benifit of privatization
1. increased finacial discipline
2. modernisation
3. increased performance of PSU by
4. pvt Capital
5. Managerial tech.
6. FDI incoming
Problem
1. instead of making Navaratna a Global Player,
2. income generated from Disinvestment used to fill Revenue deficit
NavRatna
* = profit making PSUs were given Nav ratna statuts = they get more autonomy in their work
* (Govt. doesn't interfere much when they're buying raw material or taking other decisions.)
Globalisation (the 'G' Of LPG)
its result of L+P
e.g. Outsourcing = Co. hires regular service from External Source (country ) due to Cheap - Skilled Labour Force
Globalisation is facilitated via WTO
What is the use of WTO?
1. to administrater Multilateral Trade Agrement
2. provide Equal opportunity to all in international market
3. Govt.s can't put arbitrary restriction on imports.
Criticism of Globalization / WTO
1. Major volume of International trade betn Developed Nations
2. 3rd World has to open up for 1st world but their products can't get access to 1st world.
How LPG changed India's international relations?
* Before LPG we were doing 'Import Substitution' strategy.
* Means Govt. would either prevent entry of foreign players in our local market or put so much tax on imported items that we can't afford to buy it.
* Import substitution is when we'll (or have to) buy Bajaj Scooter even when Japanese Honda (foreigner) has a cheaper / better vehicle to offer. (but Honda prevented by Govt. using above methods.)
* this sounds great from patriotic point of view,but citizens are denied all luxeries of life, even when they want to enjoy it.
* Result of Import Substion strategy was that we were not importing any luxery electronic items , walkman, VHS players, Stereos, cars etcs from Japan, Taiwan, America, etc.
* thus we didnot have any high business relations with ASEAN or any other nation.
* After LPG, our market was flooded with cheap electronic goodies. Our trade relations with Japan, Singapore, ASEAN, & America improved.
* Once Established, the Economic ties are harder to break than diplomatic / military pacts.
* Thus more economic relations we have with the world= more friends we make.
How LPG changed your life?
* Today you're able to surf internet, buy computer, mobile phones,
* have dozens of toothpastes, cars, bikes to select from...
* all that thanks to LPG.
in 1990-91-, Govt. was very low on cash, so they changed their economic policy, that's called LPG.
Why should I learn it?
1. Economy worth 100+M in Mains GS
2. International Relations worth 100+ Marks (GS paper 2 in Mains)
Whenever You want to understand india's Diplomatic relations with other nations, you've to see it pre & post cold war. same way
India's economic relation with others, you need to understand from pre & post LPG phase. that's why LPG is imp for international relation questions as well.
Why Govt. was low on cash?
1. First Gulf War = High crude oil prices
2. Fall of USSR (no one to help/ protect us)
3. Loss making Public sector undertakings (PSU)
4. Govt. was investing heavily in PSU, Development schemes, defence sectors.
5. these areas need lot money and it takes long gestation period after you see the recovery / benifit of that invested money.
6. + the usual Licence-Quota-Inspector raj. (explained later)
= Govt. has to borrow a lot from inside and outside the nation to run itself.
= We were so much out of money, that we could buy only 7 day's crude oil for the nation !
How did we get through it.
* We borrowed 7 billion Dollars from IBRD (Internation board of reconstruction & Development ) aka world bank
* But for that, we had to obey World bank's conditions - they wanted us to change our economic policies.
* thus came the LPG.
so LPG is one thing?
No its 3 different things
Liberalization
what does that mean?
* to put end on rules / Regulation to control economy
* Open up various sectors of Economy
wasn't our economy opened before LPG?
* No we had Licence-Quota-Inspector Raj.
what is Licence Raj?
* you want to open a new mobile phone making company you need to get licence from Govt..
Quota Raj
.
* even after you get the licence, you can't produce as many phones as you wish, you'll be given a quota
* say 1000 mobiles per month - you can't manufacture more than that.
Inspector Raj
* there will be a factory inspector, who will come and check how many phones you actually made,
* he gives you the certification only then you can take out your phones from warehouse to retail shops!
so when all 3 combine -its heavy delay, red tape and corruption.
Methods for Liberalisation .(Govt. used following)
End of Licence Raj (Libzn Method #1)
no more licence required for
* starting factory
* closing it or,
* deciding amount of production (= end of Quota Raj)
However you still need license for starting
1. Wine
2. Cigar
3. Hazardous Chem
4. Explosive
5. Drug-Pharma
6. Electronic
7. Aerospace
Dereservation of many things produced by Small scale industries
sectors reserved for PSU -are now only limited to
1. Defence
2. Atom
3. Railways
= means pvt players can't open machine gun making factory.
Finacial Sector Reformed (Libzn method #2)
RBI role reduced from regulator to facilitator
Financial institutions (Stock market, Forex market etc) can take decision with out consulting RBI like
1. freedom to setup new Branches
2. generate resources from India- Abroad
Result = introduction of
1. pvt Sector Banks,
2. Foreign Institutionl investors
3. Merchant Bankers
4. Mutual / Pension Funds
Tax Reform (Libzn method #3)
* Earlier income tax was high, so people used every trick to evade it.
* Now tax rates were reduced, more people came in Tax net.
* Method to collect indirect Taxes - also simplified.
Forex Reform (Libzn method #3)
* to solve BOP Crisis
* Rupee was Devalued = increased inflow of Forex
* Market to Determine Exchange Rate based on supply & demand of foreign currency. (earlier RBI was doing that)
Trade investment reform
* Quota barriers removed
* you don't have to pay high taxes on imported luxery items (gold watches / perfumes) like you had to do previously.
* no more import licence required except for Harardous materials.
Privatisation ( the 'P' of LPG)
Means Sheeding of Ownership / Management of Govt. owned companies.
How? = by Disinvestment = Privatization of PSU
by Govt. ,Selling of part of Equity to Public
Benifit of privatization
1. increased finacial discipline
2. modernisation
3. increased performance of PSU by
4. pvt Capital
5. Managerial tech.
6. FDI incoming
Problem
1. instead of making Navaratna a Global Player,
2. income generated from Disinvestment used to fill Revenue deficit
NavRatna
* = profit making PSUs were given Nav ratna statuts = they get more autonomy in their work
* (Govt. doesn't interfere much when they're buying raw material or taking other decisions.)
Globalisation (the 'G' Of LPG)
its result of L+P
e.g. Outsourcing = Co. hires regular service from External Source (country ) due to Cheap - Skilled Labour Force
Globalisation is facilitated via WTO
What is the use of WTO?
1. to administrater Multilateral Trade Agrement
2. provide Equal opportunity to all in international market
3. Govt.s can't put arbitrary restriction on imports.
Criticism of Globalization / WTO
1. Major volume of International trade betn Developed Nations
2. 3rd World has to open up for 1st world but their products can't get access to 1st world.
How LPG changed India's international relations?
* Before LPG we were doing 'Import Substitution' strategy.
* Means Govt. would either prevent entry of foreign players in our local market or put so much tax on imported items that we can't afford to buy it.
* Import substitution is when we'll (or have to) buy Bajaj Scooter even when Japanese Honda (foreigner) has a cheaper / better vehicle to offer. (but Honda prevented by Govt. using above methods.)
* this sounds great from patriotic point of view,but citizens are denied all luxeries of life, even when they want to enjoy it.
* Result of Import Substion strategy was that we were not importing any luxery electronic items , walkman, VHS players, Stereos, cars etcs from Japan, Taiwan, America, etc.
* thus we didnot have any high business relations with ASEAN or any other nation.
* After LPG, our market was flooded with cheap electronic goodies. Our trade relations with Japan, Singapore, ASEAN, & America improved.
* Once Established, the Economic ties are harder to break than diplomatic / military pacts.
* Thus more economic relations we have with the world= more friends we make.
How LPG changed your life?
* Today you're able to surf internet, buy computer, mobile phones,
* have dozens of toothpastes, cars, bikes to select from...
* all that thanks to LPG.
Industrial licensing
Industrial Licensing is governed by the Industries development & Regulation Act, 1951. The Industrial Policy Resolution of 1956 identified the following three categories of industries:
• those that would be reserved for development in the public sector;
• those that would be permitted for development through private enterprise with or without State participation; and
• those in which investment initiatives would ordinarily emanate from private entrepreneurs.
Over the years, keeping in view the changing industrial scene in the country, the policy has undergone modifications. Industrial Licensing policy and procedures have also been liberalised from time to time. A full realisation of the industrial potential of the country calls for a continuation of this process of change.
In order to achieve the objectives of the strategy for the industrial sector for the 1990s and beyond, it is necessary to make a number of changes in the system of industrial approvals. Major policy initiatives and procedural reforms are called for in order to actively encourage and assist Indian entrepreneurs to exploit and meet the emerging domestic and global opportunities and challenges. The bedrock of any such package of measures must be to let the entrepreneurs make investment decisions on the basis of their own commercial judgment. The attainment of technological dynamism and international competitiveness requires that enterprises must be enabled to swiftly respond to fast changing external conditions that have become characteristic of today's industrial world. Government policy and procedures must be geared to assisting entrepreneurs in their efforts. This can be done only if the role played by the Government were to be changed from that of only exercising control to one of providing help and guidance by making essential procedures fully transparent and by eliminating delays.
The winds of change have been with us for some time. The industrial licensing system has been gradually moving away from the concept of capacity licensing. The system of reservations for public sector undertakings has been evolving towards an ethos of greater flexibility and private sector enterprise has been gradually allowed to enter into many of these areas on a case by case basis. Further inputs must be provided to these changes which alone can push this country towards the attainment of its entrepreneurial and industrial potential. This calls for bold and imaginative decisions designed to remove restraints on capacity creation, while, at the same time ensuring that overriding national interests are not jeoparadised.
In the above context, industrial licensing will henceforth be abolished for all industries, except those specified, irrespective of levels of investment. These specified industries will continue to be subject to compulsory licensing for reasons related to security and strategic concerning social reasons, problems related to safety and overriding environmental issues, manufacture of products of hazardous nature and articles of elitist consumption. The exemption from licensing will be particularly helpful to the many dynamic small and medium entrepreneurs who have been unnecessarily hampered by the licensing system. As a whole the Indian economy will benefit by becoming more competitive, more efficient and modem and will take its rightful place in the world of industrial progress.
Industrial licensing policy
i. Industrial Licensing will be abolished for all projects except for a short list of industries related to security and strategic concerns, social reasons, hazardous chemicals and overriding environmental reasons, and items of elitist consumption list attached as Annex II). Industries reserved for the small scales sector will continue to be so reserved.
ii. Areas where security and strategic concerns predominate will continue to be reserved for the public sector (list attached as Annex 1)
iii. In projects where imported capital goods are required, automatic clearance will be given -
a. in cases where foreign exchange availability is ensured through foreign equity, - or
b. if the c.i.f. value of imported capital goods required is less than 25 per cent of total value (net of taxes) of plant and - equipment, upto a maximum value of Rs 2 crore.
In view of the current difficult foreign exchange situation, this scheme [i.e., (iii)(b) will come into force from April 1992. In other cases, imports of capital goods will require clearance from the Secretariat of Industrial Assistance (SIA) in the Department of Industrial Development according to availability of foreign exchange resources.
i. In locations other than cities of more than 1 million population, there will be no requirement of obtaining industrial approvals from the Central Government except for industries subject to compulsory licensing. In respect of cities with population greater than 1 million, industries other than those of a non-polluting nature such as electronics, computer software and printing will be located outside 25 km. of the periphery, except in prior designated industrial areas. A flexible location policy would be adopted in respect of such cities (with population greater than 1 million) which require industrial regeneration. Zoning the land use regulation and environmental legislation will continue to regulate industrial locations. Appropriate incentives and the design of investments in infrastructure development will be used to promote the dispersal of industry particularly to rural and backward areas and to reduce congestion in cities.
ii. The system of phased manufacturing programmes run on an administrative case by case basis will not be applicable to new projects. Existing projects with such programmes will continue to be governed by them.
iii. Existing units will be provided a new broad banding facility to enable them to produce any article without additional investment
iv. The exemption from licensing will apply to all substantial expansions of existing units.
v. The mandatory convertibility clause will no longer be applicable for term loans from the financial institutions for new projects.
Procedural consequences
vi. All existing registration schemes (delicenced registration, exempted industries registration DGTD registration) will be abolished
vii. Entrepreneurs will henceforth only be required to file an information memorandum on new projects and substantial expansions.
viii. The lists at Annex n and Annex m will be notified in the India Trade Classification (Harmonized System).
• those that would be reserved for development in the public sector;
• those that would be permitted for development through private enterprise with or without State participation; and
• those in which investment initiatives would ordinarily emanate from private entrepreneurs.
Over the years, keeping in view the changing industrial scene in the country, the policy has undergone modifications. Industrial Licensing policy and procedures have also been liberalised from time to time. A full realisation of the industrial potential of the country calls for a continuation of this process of change.
In order to achieve the objectives of the strategy for the industrial sector for the 1990s and beyond, it is necessary to make a number of changes in the system of industrial approvals. Major policy initiatives and procedural reforms are called for in order to actively encourage and assist Indian entrepreneurs to exploit and meet the emerging domestic and global opportunities and challenges. The bedrock of any such package of measures must be to let the entrepreneurs make investment decisions on the basis of their own commercial judgment. The attainment of technological dynamism and international competitiveness requires that enterprises must be enabled to swiftly respond to fast changing external conditions that have become characteristic of today's industrial world. Government policy and procedures must be geared to assisting entrepreneurs in their efforts. This can be done only if the role played by the Government were to be changed from that of only exercising control to one of providing help and guidance by making essential procedures fully transparent and by eliminating delays.
The winds of change have been with us for some time. The industrial licensing system has been gradually moving away from the concept of capacity licensing. The system of reservations for public sector undertakings has been evolving towards an ethos of greater flexibility and private sector enterprise has been gradually allowed to enter into many of these areas on a case by case basis. Further inputs must be provided to these changes which alone can push this country towards the attainment of its entrepreneurial and industrial potential. This calls for bold and imaginative decisions designed to remove restraints on capacity creation, while, at the same time ensuring that overriding national interests are not jeoparadised.
In the above context, industrial licensing will henceforth be abolished for all industries, except those specified, irrespective of levels of investment. These specified industries will continue to be subject to compulsory licensing for reasons related to security and strategic concerning social reasons, problems related to safety and overriding environmental issues, manufacture of products of hazardous nature and articles of elitist consumption. The exemption from licensing will be particularly helpful to the many dynamic small and medium entrepreneurs who have been unnecessarily hampered by the licensing system. As a whole the Indian economy will benefit by becoming more competitive, more efficient and modem and will take its rightful place in the world of industrial progress.
Industrial licensing policy
i. Industrial Licensing will be abolished for all projects except for a short list of industries related to security and strategic concerns, social reasons, hazardous chemicals and overriding environmental reasons, and items of elitist consumption list attached as Annex II). Industries reserved for the small scales sector will continue to be so reserved.
ii. Areas where security and strategic concerns predominate will continue to be reserved for the public sector (list attached as Annex 1)
iii. In projects where imported capital goods are required, automatic clearance will be given -
a. in cases where foreign exchange availability is ensured through foreign equity, - or
b. if the c.i.f. value of imported capital goods required is less than 25 per cent of total value (net of taxes) of plant and - equipment, upto a maximum value of Rs 2 crore.
In view of the current difficult foreign exchange situation, this scheme [i.e., (iii)(b) will come into force from April 1992. In other cases, imports of capital goods will require clearance from the Secretariat of Industrial Assistance (SIA) in the Department of Industrial Development according to availability of foreign exchange resources.
i. In locations other than cities of more than 1 million population, there will be no requirement of obtaining industrial approvals from the Central Government except for industries subject to compulsory licensing. In respect of cities with population greater than 1 million, industries other than those of a non-polluting nature such as electronics, computer software and printing will be located outside 25 km. of the periphery, except in prior designated industrial areas. A flexible location policy would be adopted in respect of such cities (with population greater than 1 million) which require industrial regeneration. Zoning the land use regulation and environmental legislation will continue to regulate industrial locations. Appropriate incentives and the design of investments in infrastructure development will be used to promote the dispersal of industry particularly to rural and backward areas and to reduce congestion in cities.
ii. The system of phased manufacturing programmes run on an administrative case by case basis will not be applicable to new projects. Existing projects with such programmes will continue to be governed by them.
iii. Existing units will be provided a new broad banding facility to enable them to produce any article without additional investment
iv. The exemption from licensing will apply to all substantial expansions of existing units.
v. The mandatory convertibility clause will no longer be applicable for term loans from the financial institutions for new projects.
Procedural consequences
vi. All existing registration schemes (delicenced registration, exempted industries registration DGTD registration) will be abolished
vii. Entrepreneurs will henceforth only be required to file an information memorandum on new projects and substantial expansions.
viii. The lists at Annex n and Annex m will be notified in the India Trade Classification (Harmonized System).
Sunday, March 27, 2011
FOREIGN EXCHANGE MANAGEMENT ACT, 1999
FOREIGN EXCHANGE MANAGEMENT ACT, 1999
- Economic Liberalization
- FERA 1973 was reviewed in 1993
- Task Force set up - Submitted Report in 1994 - Resulted in FEMA
- Changes in Economy
1) Substantial increase in Foreign Exchange Reserves
2) Growth in Foreign trade
3) Rationalization of Tariffs
4) Current Account convertibility
5) Liberalization of Indian investments abroad
6) Increased access to external commercial borrowings
7) Participation of Financial Institutional Investors in our Stock
Markets
OBJECTS
1) To consolidate and amend law relating to Foreign Exchange
2) Facilitation of external trade and payments
3) Promoting the orderly development and maintenance of Foreign
Exchange market in India
EXTENSION
- Whole of India
APPLICATION
- All Branches, Offices and Agencies outside India owned or
controlled by a person resident in India
- Any contravention committed outside India by any person to whom
the Act applies
DEFINITIONS
1) Sec. 2(c) : ‘AUTHORISED PERSON’ - means an authorized dealer,
money changer, off-shore banking unit, any person authorized under
Sub-Sec. (1) of Sec. 10 to deal in foreign exchange or securities
2) Sec. 2(e) : ‘CAPITAL ACCOUNT TRANSACTION’ - means a
transaction which alters the assets and liabilities, including
contingent liabilities outside India of persons resident in India or
assets or liabilities in India of persons resident outside India and
includes transactions under Sec. 6(3)
3) Sec. 2(h) - ‘CURRENCY’ includes all currency notes, postal notes,
postal orders, money orders, cheques, drafts, travellor cheques,
letter of credit, bills of exchange and promissory notes, credit cards
or such other similar instruments, as may be notified by Reserve
Bank
4) Sec. 2( i ) - ‘CURRENCY NOTES ’ means and includes cash in the
form of coins and bank notes
5) Sec. 2(j) - ‘CURRENT ACCOUNT TRANSACTION’ means a
transaction other than a Capital Account Transaction and without
prejudice to the generality of the foregoing such transaction includes
a) Payments due in connection with foreign trade, other current
business services, and short term banking and credit facilities in
the ordinary course of business
b) Payments due as interest on loans and as net income from
investments
c) Remittances for living expenses of parents, spouse and children
residing abroad
d) Expenses in connection with foreign travel, education and
medical care of parents, spouse and children
6. Sec. 2( l ) - ‘EXPORT ’ with its grammatical variations and cognate
expressions means
a) the taking out of India to a place outside India any goods
b) provision of services from India to any person outside India
7. Sec . 2(m ) - ‘FOREIGN CURRENCY ’ means any currency other than
Indian currency
8. Sec. 2(n ) - ‘FOREIGN EXCHANGE ’ means foreign currency and
includes
a) Deposits, credits and balances payable in any foreign currency
b) Drafts, travellor cheques, letter of credit or bills of exchange,
expressed or drawn in Indian currency but payable in any
foreign currency
c) Drafts, travellor cheques, letters of credit or bills of exchange
drawn by banks, institutions or persons outside India, but
payable in Indian currency
9. Sec. 2(o) ‘FOREIGN SECURITY’ means any security, in the form of
shares, stocks, bonds, debentures or any other instrument
denominated or expressed in foreign currency and includes
securities expressed in foreign currency, but where redemption or
any form of return such as interest or dividend is payable in Indian
currency
10. Sec. 2(p ) ‘IMPORT ’ with its grammatical variations and cognate
expressions, means bringing into India goods and services
11. Sec. 2(q ) ‘INDIAN CURRENCY ’ means currency which is expressed
or drawn in Indian rupees but does not include special bank notes
and special one rupee notes issued U/S 28A of RBI Act, 1934
12. Sec. 2(u ) ‘PERSON ’ includes
a) An individual
b) A HUF - Hindu Undivided Family
c) A Company
d) A Firm
e) An association of persons or a body of individuals, whether
incorporated or not
f) Every artificial juridical person, not falling within any of the
preceding sub-clauses
g) Any agency, office or branch owned or controlled by such
person
13. Sec. 2(v ) - ‘PERSON RESIDENT IN INDIA ’ means
i) A person residing in India for more than 182 days during the
course of the preceding financial year but does not include
A) A person who has gone out of India or who stays outside
India, in either case
a) For or on taking up employment outside India or
b) For carrying on outside India a business or vocation outside
India or
c) For any other purpose in such circumstances as would
indicate his intention to stay outside India for an uncertain
period
B) A person who has come to or stays in India in either case
otherwise than
a) For or on taking of employment in India or
b) For carrying on in India a business or vocation in India or
c) For any other purpose, in such circumstances as would
indicate his intention to stay in India for an uncertain period
ii) Any person or body corporate registered or incorporated in India
iii) An office, branch or agency in India owned or controlled by a
person resident outside India
iv) An office, branch or agency outside India owned or controlled by
a person resident in India
14. Sec. 2(w) ‘PERSON RESIDENT OUTSIDE INDIA ’ means a person
who is not resident in India.
15. Sec. 2(y) ‘REPATRIATE TO INDIA ’ means bringing into India the
realized Foreign Exchange and
i) The selling of such Foreign Exchange to an authorized person
in India in exchange for rupees
ii) The holding of realized amount in an account with an authorized
person in India to the extent notified by the Reserve Bank of
India
and includes use of the realized amount for discharge of a debt or
liability denominated in Foreign Exchange and the expression
‘Repatriation’ shall be construed accordingly.
16. Sec. 2( zb ) ‘SERVICE ’ means service of any description which is
made available to potential users and includes the provision of
facilities in connection with banking, financing, insurance, medical
assistance, legal assistance, chit fund, real estate, transport,
processing, supply of electrical or other energy, boarding or lodging
or both, entertainment, amusement or the purveying of news or
other information, but does not include the rendering of any service
free of charge or under a contract of personal service.
REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE
Sec. 3 - Dealing in FE shall be only with general or special permission of
Reserve Bank of India
i.e. Dealings or transfer of Foreign Exchange or Foreign
Securities through Authorized Person
Payments or credits to persons resident outside India
Payments on behalf of persons resident outside India
through Authorized Person
Financial transaction in India resulting in creation of asset
outside India
Exp. All remittances through Authorized Person
Transactions involving money - Foreign Trade
Sec. 4 - No person resident in India shall acquire, hold, own, possess or
transfer any Foreign Exchange, Foreign Security or immoveable
property situated outside India
Sec. 5 - Current Account Transactions through Authorized Person -
Central Government in public interest and on consultation with
Reserve Bank of India impose reasonable restrictions
Sec. 6 - All Capital Account Transactions through Authorized Dealer
- Reserve Bank of India with consultation of Central Government
- Specify class or classes of Capital Account Transactions which
are permissible and limit Foreign Exchange in such
transactions:
- Reserve Bank of India may specifically impose the following
restrictions
a) Transfer or issue of any foreign security by a person
resident in India
b) Transfer or issue of any security by a person resident
outside India
c) Transfer or issue of any security or foreign security by any
branch, office or agency in India of a person resident
outside India
d) Any borrowing or lending in Foreign Exchange in whatever
form or by whatever name called
e) Any borrowing or lending in rupees in whatever form or by
whatever name called between a person resident in India
and persons resident outside India
f) Deposits between persons resident in India and persons
resident outside India
g) Export, Import or holding of currency or currency notes
h) Transfer of immoveable property outside India other than a
lease not exceeding five years, by a person resident in
India
i) Acquisition or transfer of immovable property in India other
than a lease not exceeding five years by a person resident
outside India
j) Giving of a guarantee or surety in respect of any debt,
obligation or other liability incurred
i) by a person resident in India and owed to a person
resident outside India or
ii) by a person resident outside India
- A person residing in India may hold asset outside India if
acquired when they are inherited from person residing
there
- A person residing outside India may hold asset in India
acquired when residing here or inherited from person
residing here
- Reserve Bank of India to put restrictions for setting up
business in India by person outside
Sec. 7 - EXPORT OF GOODS AND SERVICES
- Every Exporter of goods to furnish following information to Reserve
Bank of India
a) Authority of declaration
b) Containing true and material particulars
c) Full export value or
d) Full export value as per market rate
e) Information for ensuring realization of export proceeds
- Reserve Bank of India to inform exporter the requirements to realize
export proceeds
- Every exporter of services to provide material particulars to Reserve
Bank of India
Sec. 8 - REALIZATION & REPATRIATION OF FOREIGN EXCHANGE
by person resident in India as per procedure of Reserve Bank of India
Sec. 9 - EXEMPTION FROM REALIZATION AND REPATRIATION in
certain cases - Secs. 4 to 8 not to apply in the following cases:
i) Possession of foreign currency or foreign coins by any
person upto limit provided by Reserve Bank of India
ii) Foreign currency account held or operated by such person
or class of persons and upto limit specified by Reserve
Bank of India
iii) Foreign Exchange acquired or received before 8/7/1947 or
any income arising or accruing thereon which is held
outside India by any person in pursuance of general or
special permission granted by Reserve Bank of India
iv) Foreign Exchange held by a person resident in India upto
such limit as the Reserve Bank of India may specify, if such
Foreign Exchange was acquired by way of gift or
inheritance from a person as in clause (iii) including any
income arising therefrom
v) Foreign Exchange acquired from employment, business,
trade, vocation, services, honorarium, gifts, inheritance or
any other legitimate means upto such limit as Reserve
Bank of India may specify
vi) Such other receipts specified by Reserve Bank of India
Sec.10 -AUTHORIZED PERSON
- Application to Reserve Bank of India - to deal in Foreign Exchange
and foreign securities i.e. to be a Dealer, Money Changer, Off-shore
Banking Unit
- Authorization granted in writing subject to conditions
- Authorization can be revoked by Reserve Bank of India
a) in public interest
b) violation of conditions, rules, regulations and law after
opportunity of hearing
- Authorized Person to comply with terms of authorization and special
and general directions of Reserve Bank of India
- Authorized Person to require declaration by person regarding
compliance with law and to report to Reserve Bank of India if person
fails to comply with declaration or fails to give it
- Any person fails to use acquired Foreign Exchange as per
declaration or fails to give it to Authorized Dealer has contravened
this Act
Sec . 11 - RESERVE BANK OF INDIA ’s POWER TO ISSUE
DIRECTIONS TO AUTHORIZED PERSON
- For the following purposes
a) Securing compliance with provisions of this Act relating to
Foreign Exchange and Foreign Securities
b) Ensure compliance with provisions of Act and supply of
information
- Failure of Authorized Person - Opportunity of being heard - fine of
upto Rs.10,000/-, Rs.2,000/- per day in case of continuing offence
Sec.12 - POWER OF RESERVE BANK OF INDIA TO INSPECT
AUTHORIZED PERSON
- By Inspector of Reserve Bank of India for following purposes
i) Verifying the correctness of any statement, information or
particulars provided to Reserve Bank of India
ii) Obtaining any information or particulars which such Authorized
Person has failed to furnish on being called upon to do so
iii) Securing compliance with the provisions of this Act of any rules,
regulations, directions or orders made thereunder
- Duty of AP to make available all documents and information for this
purpose
Sec.36 -DIRECTORATE OF ENFORCEMENT
- Central Government to establish Directorate of Enforcement with the
following personnel
a) Director
b) Officers of Enforcement - Its powers and duties
c) Additional Director of Enforcement
d) Special Director of Enforcement
e) Deputy Director of Enforcement
f) Assistant Director of Enforcement
Sec.37 -POWER OF SEARCH AND SEIZURE
- All the above to exercise power of investigation under this Act -
Powers of Income Tax Officers
- Also Officers of Central Government, State Government, Reserve
Bank of India not below rank of Under Secretary
Sec.38 -EMPOWERING OTHER OFFICERS
- Under Order of Central Government subject to conditions and
limitations
- Officer of Customs ) Exercise powers of
- Central Excise Officer ) Directorate of Enforcement
- Police Officer ) and powers of Income Tax
- Officer of Central Government or ) Officers
State Government )
- Economic Liberalization
- FERA 1973 was reviewed in 1993
- Task Force set up - Submitted Report in 1994 - Resulted in FEMA
- Changes in Economy
1) Substantial increase in Foreign Exchange Reserves
2) Growth in Foreign trade
3) Rationalization of Tariffs
4) Current Account convertibility
5) Liberalization of Indian investments abroad
6) Increased access to external commercial borrowings
7) Participation of Financial Institutional Investors in our Stock
Markets
OBJECTS
1) To consolidate and amend law relating to Foreign Exchange
2) Facilitation of external trade and payments
3) Promoting the orderly development and maintenance of Foreign
Exchange market in India
EXTENSION
- Whole of India
APPLICATION
- All Branches, Offices and Agencies outside India owned or
controlled by a person resident in India
- Any contravention committed outside India by any person to whom
the Act applies
DEFINITIONS
1) Sec. 2(c) : ‘AUTHORISED PERSON’ - means an authorized dealer,
money changer, off-shore banking unit, any person authorized under
Sub-Sec. (1) of Sec. 10 to deal in foreign exchange or securities
2) Sec. 2(e) : ‘CAPITAL ACCOUNT TRANSACTION’ - means a
transaction which alters the assets and liabilities, including
contingent liabilities outside India of persons resident in India or
assets or liabilities in India of persons resident outside India and
includes transactions under Sec. 6(3)
3) Sec. 2(h) - ‘CURRENCY’ includes all currency notes, postal notes,
postal orders, money orders, cheques, drafts, travellor cheques,
letter of credit, bills of exchange and promissory notes, credit cards
or such other similar instruments, as may be notified by Reserve
Bank
4) Sec. 2( i ) - ‘CURRENCY NOTES ’ means and includes cash in the
form of coins and bank notes
5) Sec. 2(j) - ‘CURRENT ACCOUNT TRANSACTION’ means a
transaction other than a Capital Account Transaction and without
prejudice to the generality of the foregoing such transaction includes
a) Payments due in connection with foreign trade, other current
business services, and short term banking and credit facilities in
the ordinary course of business
b) Payments due as interest on loans and as net income from
investments
c) Remittances for living expenses of parents, spouse and children
residing abroad
d) Expenses in connection with foreign travel, education and
medical care of parents, spouse and children
6. Sec. 2( l ) - ‘EXPORT ’ with its grammatical variations and cognate
expressions means
a) the taking out of India to a place outside India any goods
b) provision of services from India to any person outside India
7. Sec . 2(m ) - ‘FOREIGN CURRENCY ’ means any currency other than
Indian currency
8. Sec. 2(n ) - ‘FOREIGN EXCHANGE ’ means foreign currency and
includes
a) Deposits, credits and balances payable in any foreign currency
b) Drafts, travellor cheques, letter of credit or bills of exchange,
expressed or drawn in Indian currency but payable in any
foreign currency
c) Drafts, travellor cheques, letters of credit or bills of exchange
drawn by banks, institutions or persons outside India, but
payable in Indian currency
9. Sec. 2(o) ‘FOREIGN SECURITY’ means any security, in the form of
shares, stocks, bonds, debentures or any other instrument
denominated or expressed in foreign currency and includes
securities expressed in foreign currency, but where redemption or
any form of return such as interest or dividend is payable in Indian
currency
10. Sec. 2(p ) ‘IMPORT ’ with its grammatical variations and cognate
expressions, means bringing into India goods and services
11. Sec. 2(q ) ‘INDIAN CURRENCY ’ means currency which is expressed
or drawn in Indian rupees but does not include special bank notes
and special one rupee notes issued U/S 28A of RBI Act, 1934
12. Sec. 2(u ) ‘PERSON ’ includes
a) An individual
b) A HUF - Hindu Undivided Family
c) A Company
d) A Firm
e) An association of persons or a body of individuals, whether
incorporated or not
f) Every artificial juridical person, not falling within any of the
preceding sub-clauses
g) Any agency, office or branch owned or controlled by such
person
13. Sec. 2(v ) - ‘PERSON RESIDENT IN INDIA ’ means
i) A person residing in India for more than 182 days during the
course of the preceding financial year but does not include
A) A person who has gone out of India or who stays outside
India, in either case
a) For or on taking up employment outside India or
b) For carrying on outside India a business or vocation outside
India or
c) For any other purpose in such circumstances as would
indicate his intention to stay outside India for an uncertain
period
B) A person who has come to or stays in India in either case
otherwise than
a) For or on taking of employment in India or
b) For carrying on in India a business or vocation in India or
c) For any other purpose, in such circumstances as would
indicate his intention to stay in India for an uncertain period
ii) Any person or body corporate registered or incorporated in India
iii) An office, branch or agency in India owned or controlled by a
person resident outside India
iv) An office, branch or agency outside India owned or controlled by
a person resident in India
14. Sec. 2(w) ‘PERSON RESIDENT OUTSIDE INDIA ’ means a person
who is not resident in India.
15. Sec. 2(y) ‘REPATRIATE TO INDIA ’ means bringing into India the
realized Foreign Exchange and
i) The selling of such Foreign Exchange to an authorized person
in India in exchange for rupees
ii) The holding of realized amount in an account with an authorized
person in India to the extent notified by the Reserve Bank of
India
and includes use of the realized amount for discharge of a debt or
liability denominated in Foreign Exchange and the expression
‘Repatriation’ shall be construed accordingly.
16. Sec. 2( zb ) ‘SERVICE ’ means service of any description which is
made available to potential users and includes the provision of
facilities in connection with banking, financing, insurance, medical
assistance, legal assistance, chit fund, real estate, transport,
processing, supply of electrical or other energy, boarding or lodging
or both, entertainment, amusement or the purveying of news or
other information, but does not include the rendering of any service
free of charge or under a contract of personal service.
REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE
Sec. 3 - Dealing in FE shall be only with general or special permission of
Reserve Bank of India
i.e. Dealings or transfer of Foreign Exchange or Foreign
Securities through Authorized Person
Payments or credits to persons resident outside India
Payments on behalf of persons resident outside India
through Authorized Person
Financial transaction in India resulting in creation of asset
outside India
Exp. All remittances through Authorized Person
Transactions involving money - Foreign Trade
Sec. 4 - No person resident in India shall acquire, hold, own, possess or
transfer any Foreign Exchange, Foreign Security or immoveable
property situated outside India
Sec. 5 - Current Account Transactions through Authorized Person -
Central Government in public interest and on consultation with
Reserve Bank of India impose reasonable restrictions
Sec. 6 - All Capital Account Transactions through Authorized Dealer
- Reserve Bank of India with consultation of Central Government
- Specify class or classes of Capital Account Transactions which
are permissible and limit Foreign Exchange in such
transactions:
- Reserve Bank of India may specifically impose the following
restrictions
a) Transfer or issue of any foreign security by a person
resident in India
b) Transfer or issue of any security by a person resident
outside India
c) Transfer or issue of any security or foreign security by any
branch, office or agency in India of a person resident
outside India
d) Any borrowing or lending in Foreign Exchange in whatever
form or by whatever name called
e) Any borrowing or lending in rupees in whatever form or by
whatever name called between a person resident in India
and persons resident outside India
f) Deposits between persons resident in India and persons
resident outside India
g) Export, Import or holding of currency or currency notes
h) Transfer of immoveable property outside India other than a
lease not exceeding five years, by a person resident in
India
i) Acquisition or transfer of immovable property in India other
than a lease not exceeding five years by a person resident
outside India
j) Giving of a guarantee or surety in respect of any debt,
obligation or other liability incurred
i) by a person resident in India and owed to a person
resident outside India or
ii) by a person resident outside India
- A person residing in India may hold asset outside India if
acquired when they are inherited from person residing
there
- A person residing outside India may hold asset in India
acquired when residing here or inherited from person
residing here
- Reserve Bank of India to put restrictions for setting up
business in India by person outside
Sec. 7 - EXPORT OF GOODS AND SERVICES
- Every Exporter of goods to furnish following information to Reserve
Bank of India
a) Authority of declaration
b) Containing true and material particulars
c) Full export value or
d) Full export value as per market rate
e) Information for ensuring realization of export proceeds
- Reserve Bank of India to inform exporter the requirements to realize
export proceeds
- Every exporter of services to provide material particulars to Reserve
Bank of India
Sec. 8 - REALIZATION & REPATRIATION OF FOREIGN EXCHANGE
by person resident in India as per procedure of Reserve Bank of India
Sec. 9 - EXEMPTION FROM REALIZATION AND REPATRIATION in
certain cases - Secs. 4 to 8 not to apply in the following cases:
i) Possession of foreign currency or foreign coins by any
person upto limit provided by Reserve Bank of India
ii) Foreign currency account held or operated by such person
or class of persons and upto limit specified by Reserve
Bank of India
iii) Foreign Exchange acquired or received before 8/7/1947 or
any income arising or accruing thereon which is held
outside India by any person in pursuance of general or
special permission granted by Reserve Bank of India
iv) Foreign Exchange held by a person resident in India upto
such limit as the Reserve Bank of India may specify, if such
Foreign Exchange was acquired by way of gift or
inheritance from a person as in clause (iii) including any
income arising therefrom
v) Foreign Exchange acquired from employment, business,
trade, vocation, services, honorarium, gifts, inheritance or
any other legitimate means upto such limit as Reserve
Bank of India may specify
vi) Such other receipts specified by Reserve Bank of India
Sec.10 -AUTHORIZED PERSON
- Application to Reserve Bank of India - to deal in Foreign Exchange
and foreign securities i.e. to be a Dealer, Money Changer, Off-shore
Banking Unit
- Authorization granted in writing subject to conditions
- Authorization can be revoked by Reserve Bank of India
a) in public interest
b) violation of conditions, rules, regulations and law after
opportunity of hearing
- Authorized Person to comply with terms of authorization and special
and general directions of Reserve Bank of India
- Authorized Person to require declaration by person regarding
compliance with law and to report to Reserve Bank of India if person
fails to comply with declaration or fails to give it
- Any person fails to use acquired Foreign Exchange as per
declaration or fails to give it to Authorized Dealer has contravened
this Act
Sec . 11 - RESERVE BANK OF INDIA ’s POWER TO ISSUE
DIRECTIONS TO AUTHORIZED PERSON
- For the following purposes
a) Securing compliance with provisions of this Act relating to
Foreign Exchange and Foreign Securities
b) Ensure compliance with provisions of Act and supply of
information
- Failure of Authorized Person - Opportunity of being heard - fine of
upto Rs.10,000/-, Rs.2,000/- per day in case of continuing offence
Sec.12 - POWER OF RESERVE BANK OF INDIA TO INSPECT
AUTHORIZED PERSON
- By Inspector of Reserve Bank of India for following purposes
i) Verifying the correctness of any statement, information or
particulars provided to Reserve Bank of India
ii) Obtaining any information or particulars which such Authorized
Person has failed to furnish on being called upon to do so
iii) Securing compliance with the provisions of this Act of any rules,
regulations, directions or orders made thereunder
- Duty of AP to make available all documents and information for this
purpose
Sec.36 -DIRECTORATE OF ENFORCEMENT
- Central Government to establish Directorate of Enforcement with the
following personnel
a) Director
b) Officers of Enforcement - Its powers and duties
c) Additional Director of Enforcement
d) Special Director of Enforcement
e) Deputy Director of Enforcement
f) Assistant Director of Enforcement
Sec.37 -POWER OF SEARCH AND SEIZURE
- All the above to exercise power of investigation under this Act -
Powers of Income Tax Officers
- Also Officers of Central Government, State Government, Reserve
Bank of India not below rank of Under Secretary
Sec.38 -EMPOWERING OTHER OFFICERS
- Under Order of Central Government subject to conditions and
limitations
- Officer of Customs ) Exercise powers of
- Central Excise Officer ) Directorate of Enforcement
- Police Officer ) and powers of Income Tax
- Officer of Central Government or ) Officers
State Government )
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