RBI allows banks to give higher returns on foreign currency deposits

Published: Sat 30 Jul 2022, 5:28 PM

Non-resident Indians will now get a higher return for deposits in Foreign Currency Non-Resident accounts as well as on Non-Resident (External) deposits.

By H. P. Ranina

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Reuters file photo
Reuters file photo

The rupee has weakened considerably in the last few weeks. Are any steps being taken to reduce the volatility?

The Indian Rupee has weakened primarily on account of large dollar outflows by foreign portfolio investors who have sold their securities in India after the US Federal Reserve Bank increased the interest rates. To deal with this challenge, the Reserve Bank of India has allowed banks to give higher returns on foreign currency deposits. This would be done by exempting such deposits from the requirement to maintain reserves with the Reserve Bank of India. Inflows of debt portfolio have been encouraged by widening the basket of securities available to foreign portfolio investors. Rules governing external commercial borrowing by corporates have been relaxed with the limit under the automatic route being doubled to $1.5 billion. Further, the cap on borrowing costs has been raised by one percentage point. Therefore, non-resident Indians will now get a higher return for deposits in Foreign Currency Non-Resident accounts as well as on Non-Resident (External) deposits. The earlier limit placed on interest rates has been removed for fresh deposits made hereafter. This relaxation will be available upto October 31, 2022.

The fast moving consumer goods industry in India seems to be doing very well as reflected in the corporate results of the top FMCG companies in India. Will this growth be sustainable in the coming months?

The increase in turnover and profitability of companies manufacturing consumer goods is mainly due to higher purchasing power in the hands of agriculturists and persons in rural areas. Income of farmers has increased by around 1.7 times compared to the financial year 2017-18. This is primarily due to farmers shifting to growing cash crops and engaging in allied non-farming businesses. According to a recent study made, the higher purchasing power in the hands of farmers over the last four years has been the increase in the minimum support price which is linked with market determined prices. The farm sector is currently in the throes of a significant structural shift on account of a plethora of Government policies. Further, export of agricultural produce has registered a substantial increase in 2021-22 which has resulted in tax free income of farmers going up substantially. During the current financial year, exports from India of fruits, notably grapes, are likely to register an all time increase on account of fires in Southern Europe which has resulted in destruction of their agricultural produce.

With a severe heat wave affecting many countries of the world, the study of geoengineering technologies is becoming imperative. My son wants to go in for education in this field. I need some information on this subject.

Geoengineering is a term for various experimental technologies designed to alter the climate system which would reduce the impact of global warming. The two technologies involved are solar radiation modification (SRM) and carbon dioxide removal (CDR). SRM technologies are currently attracting the most attention of scientists. The object of this is to reduce the amount of solar radiation reaching the earth by reflecting sunlight back into space, thereby reducing surface temperatures. Scientists are experimenting with different techniques such as making clouds brighter, thereby reflecting sunlight. In fact, cloud engineering is not new and countries like China have been seeding clouds to generate more rain. This is also being done in India. The latest technology which is currently being experimented is Stratospheric Aerosol Injection (SAI). SAI aims to mimic large volcanic eruptions which have a cooling effect on the globe. Several modelling studies indicate that SAI will reduce some of the worst effects of climate change. Hence, there is tremendous scope in this field and your son should be encouraged to pursue studies in this area.

H. P. Ranina is a practicing lawyer, specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper’s policy

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