Foreign exchange India

Foreign exchange system in India - The central government in India has wide powers to control transactions in foreign exchange. Until 1992 all foreign investments in India and the repatriation of foreign capital required prior approval of the government. The Foreign-Exchange Regulation Act, which governs foreign investment, rarely allowed foreign majority holdings. However, a new foreign investment policy announced in July 1991 prescribed automatic approval for foreign investments in thirty-four industries designated high priority, up to an equity limit of 51 percent. Initially the government required that a company's automatic approval must rely on matching exports and dividend repatriation, but in May 1992 this requirement was lifted, except for low-priority sectors. In 1994 foreign and nonresident Indian investors were allowed to repatriate not only their profits but also their capital. Indian exporters are also free to use their export earnings as they see fit. However, transfer of capital abroad by Indian nationals is only permitted in special circumstances, such as emigration. Foreign exchange in India is automatically made available for imports for which import licenses are issued.

Because foreign-exchange transactions in India are so tightly controlled, Indian authorities are able to manage the exchange rate, and from 1975 to 1992 the rupee was tied to a trade-weighted basket of currencies. In February 1992, the government began moves to make the rupee convertible, and in March 1993 a single floating exchange rate was implemented. In July 1995, Rs31.81 were worth US$1, compared with Rs7.86 in 1980, Rs12.37 in 1985, and Rs17.50 in 1990.