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75922643

Timing and Sequencing of Measures for Capital Account Convertibility (Part 1 of 2)

Chapter 4

4.1

The establishment of preconditions/signposts have been outlined in Chapter 3. The timing and sequencing of phasing out of capital controls assumes operational significance in the move towards CAC and these issues are addressed in this Chapter.

  

4.2

Capital account convertibility is at present available for foreign direct investors under the extant FDI policy, portfolio investment for FIIs, NRIs and investment in non resident repatriable deposit schemes with banks in India. The international experience has shown that liberalisation of the capital account induces large capital inflows, which can cause a real appreciation of the exchange rate and erode the effectiveness of certain domestic macro economic policies. The Committee recommends that alongside further measures of liberalisation of capital inflows it is desirable to simultaneously liberalise controls on outflows as a means of contending with capital inflows. An early albeit cautious beginning to allow capital outflows is desirable as the system is attuned to a totally rigid ban on certain outflows and there is a need to develop confidence that some capital outflows, far from being destabilising, would be conducive to the overall efficiency of deployment of resources. Capital outflows, in the context of larger inflows, could relieve pressure on the exchange rate and the foreign exchange reserves and thereby enhance the effectiveness of domestic policies.

  

4.3

The Committee recognises that while the timing and sequencing of CAC proposed in this chapter can be undertaken under the existing laws and regulations relating to foreign exchange, they would be facilitated by the proposed changes in the legislative framework governing foreign exchange transactions. In this regard, Shri. P. Chidambaram, the Union Finance Minister in his speech while presenting the Union Budget for 1997-98 said

  
  

" As we progress towards a more open economy with greater trade and investment linkages with the rest of the world, the regulations governing foreign exchange transactions also needs to be modernised it is generally acknowledged that the Foreign Exchange Regulation Act, 1973 needs to be replaced by a new law consistent with full capital account, convertibility .........." [Part A - Paragraph 38]

  

4.4

In this Chapter, the timing and sequencing of liberalising both inflows and outflows of capital are set out within the framework of a phased three year road map, classified in relation to various economic agents, viz., resident and non resident corporates, banks, non bank financial institutions and individuals. Concomitant measures for the development of financial markets to handle the enhanced mobility of capital flows are also set out.

  

4.5

The banking system in India has been insulated from overseas markets for decades. Severe restrictions have been placed on banks borrowing funds from overseas or investing/lending abroad. Arbitraging between domestic and overseas markets have been strictly prohibited. The Committee recommends several measures for liberalising capital transfers by banks. Having regard to the fact that large scale short-term borrowings can be destabilising, the Committee recommends limits on such borrowings by the banking system. At the same time, a level playing field is to be ensured and the phased relaxation of controls should be concurrent with measures undertaken to ensure such a level playing field. In the area of foreign direct investment and portfolio investment, the Committee recommends complete elimination of the prior approval process from exchange control for investment/disinvestment.

  

4.6

Having regard to the need to keep external debt within sustainable limits, the Committee has proposed continuance of the policy of ceilings on external commercial borrowings (except for loans with long maturities). The Committee recommends simplification of the procedure for investments overseas in joint ventures/subsidiaries and substantial increase in the value limit for such investments (without prior approval) which is expected to make Indian industry competitive. Moreover, the Committee recommends that the exacting repatriation stipulations for such investments should be totally removed.

  

4.7

The Committee is of the view that a start should be made to liberalize outflows by individual residents. This will lend credibility to the commitment for CAC and give confidence to both residents and non residents that their genuine requirements for capital transactions are adequately met.

  

4.8

The various measures for removing capital controls and the timings and sequencing thereof proposed by the Committee are tabulated in Chapter. The rationale for the measures is given in the paragraphs following the tabulated list of measures.

Capital Account Convertibility- Timing and Sequencing of Measures

($ indicates US dollars)


 

Item

Present Position

Phase I

Phase II

Phase III

   

1997-98

1998-99

1999-2000


1.

CORPORATES/BUSINESSES

    
      

A.

Corporates/Businesses - Residents

    
      

1.

Issuing foreign currency

Not permitted

To be permitted

Same as

Same as

 

denominated bonds to residents

 

without any ceiling

Phase I

Phase I

 

(only rupee settlement) and

.

   
 

investing in foreign currency

    
 

denominated bonds and deposits

    
 

(only rupee settlement).

    
      

2.

Financial capital transfers abroad

Not permitted.

$ 25,000 per annum.

$ 50,000 per

$ 100,000 per

 

including for opening current/

  

annum.

annum.

 

chequeable accounts.

    
      

3.

Accessing capital markets abroad through

Permitted

No approval to be

Same as

Same as

 

GDRs & ADRs/ other forms of equity issues.

individually by

taken from RBI/

Phase I

Phase I

  

Government. Approval

Government Reporting

  
  

under FERA given

within 30 days from

  
  

by RB1.

close of issue

  
      

4.

External Commercial Borrowings(ECBs)

ECBs are subject to

Queuing for

Same as

Same as

  

overall ceiling with

purposes of

Phase I

Phase II

  

sub-ceilings as indicated

implementing

except for

 
  

below:

ceiling on ECB

loans with

 
  

(i) Import linked

while ensuring

average

 
  

short-term loans (Buyers/

that relatively

maturity of

 
  

Suppliers credit) for less

smaller

7 years and

 
  

than 3 years (i.e., 35

borrowers are

above to be

 
  

months) approved by RBI

not crowded

outside

 
  

subject to sub- ceiling

out by a few

ceiling.

 
  

fixed by Government.

very large

  
  

ii) Loans beyond 35 months

borrowers. No

  
  

approved by Government.

restrictions on end use

  
  

iii) US $ 3 million for a

of funds.

  
  

minimum period of 3

   
  

years for business related

Loans for

  
  

expenses including

periods with average

  
  

financing rupee cost of

maturity of 10

  
  

the project - approved by

years and above

  
  

RBI within sub-ceiling

to be kept outside the

  
  

fixed by Government.

ceiling.

  
  

iv) All other loans are

   
  

approved by Government

   
  

(generally for financing

   
  

requirements of

   
  

infrastructure projects, etc.).

   
      

5.

Foreign Currency Convertible

Permitted

To be within ECB

Same as

Same as

 

Bonds/Floating Rate Notes

individually by

celling with same

Phase 1

Phase I

  

Government within

procedure viz.

  
  

overall ECB ceiling.

queuing vide item 4.

  
      

6.

Loans from non residents

Allowed by RBI on a

To be allowed to

To be allowed

To be allowed

  

case-by-case basis

borrow up to $

borrow up to

to borrow up to

  

for loans from NRIs

250,000 per entity

$ 500,000 per

$ 1 million per

  

on non repatriable

with payment of

entity with

entity with

  

basis with

interest not exceeding

payment of

payment of

  

restrictions on

LIBOR without

interest not

interest not

  

interest payment and

restriction on period

exceeding

exceeding

  

end-use.

of loan, use of funds

LIBOR without

LIBOR

   

and repatriation of

restriction on

without

   

loan/interest.

period of loan,

restriction on

    

use of funds

period of loan,

    

and

use of funds

    

repatriation of

and repatria-

    

loan/interest.

tion of loan/

     

interest.

      

7.

Joint ventures/wholly owned

Proposals for

Direct investments

Same as

Same as

 

subsidiaries abroad

investments up to

abroad to be allowed

Phase I

Phase I

  

$ 4 million are

for ventures up to $

  
  

cleared by the RBI.

50 million by ADs

  
  

The extent of

subject to transparent

  
  

outflow is dependent

guidelines to be laid

  
  

upon the export

down by the RBI.

  
  

performance of the

Above $ 50 million

  
  

Indian promoter and

through Special

  
  

capability for

Committee. The

  
  

repatriation by way

current stipulation on

  
  

of dividend, etc.,

repatriation of

  
  

within a period of

earnings by way of

  
  

five years. Cases not

dividend etc. within a

  
  

covered by these

specified time period

  
  

criteria are cleared

should be removed.

  
  

by a Special

JVs/WOSs can be set

  
  

Committee.

up by all parties and

  
  

Recently, an

not restricted only to

  
  

announcement has

exporters/exchange

  
  

been made in the

earners.

  
  

Budget that balances

   
  

in EEFC accounts

   
  

can be used for

   
  

investments upto

   
  

$ 15 million without

   
  

the specific approval

   
  

of RBI.

   
      

8.

Project Exports

Indian project

Requirement of prior

Same as

Same

  

exporters are

approval by the RBI

Phase I

Phase I

  

required to approach

may be dispensed

  
  

the RBI for prior

with subject, to

  
  

approval for variety

reporting to the RBI.

  
  

of purposes while

   
  

executing the

   
  

projects abroad

   
      

9.

Establishment of offices abroad

Powers given to ADs

Any corporate entity

Same as

Same as

  

to allow remittances

may open offices

Phase I

Phase I

  

for exporters with an

abroad without the

  
  

average annual

need for prior

  
  

export turnover of

approval from RBI.

  
  

Rs. 150 lakhs and

Capital expenditure

  
  

above to open

towards opening of

  
  

representative/non-

the offices and current

  
  

trading offices.

expenditure for

  
  

Further, EEFC

maintenance could be

  
  

account holders have

subject to overall

  
  

been permitted to

value limits to be

  
  

utilise their EEFC

allowed by ADs.

  
  

balances without any

   
  

restriction for

   
  

establishing any type

   
  

of offices. Other

   
  

cases require RBI

   
  

approval.

   
      

10.

EEFC accounts for exporters and

50 per cent for EOUs

100 per cent of

Same as

Same as

 

exchange earners

and 25 percent for

earnings for all

Phase I

Phase I with

  

others- restrictions

exporters/exchange

 

additional

  

on use of funds for

earners to be allowed

 

provision that

  

current account and

to be held in EEFC

 

EEFC ac counts

  

permitted capital

accounts in India. Use

 

can be

  

account transactions.

of funds allowed for

 

held with banks

   

current and permitted

 

outside India at

   

capital account

 

the option

   

transactions with

 

of the exporter

   

cheque writing

 

and the exchange

   

facility.

 

earners.

      

B.

Corporates - Non Residents

    
 

(including OCBs)

    
      

1.

Foreign Direct Investment (FDI)

Currently OCBs are

Prior approval

Same as

Same as

  

allowed facilities similar to

of RBI not

Phase I

Phase I

  

NRIs. Other corporates are

required for

  
  

allowed to invest up to

FDI. Reporting

  
  

various proportions with

by ADs to the

  
  

RBI/Government approval

RBI.

  
  

under the FDI policy of the

   
  

Government.

   
      

2.

Portfolio Investment in India through

Allowed within the 24 per

To be allowed to

Same as

Same as

 

stock exchanges in shares/

cent limit (can be increased

all non-residents

Phase I

Phase I

 

debentures.

to 30 per cent at the option

without prior

  
  

of the company) which

approval by

  
  

includes portfolio

RBI. Designated

  
  

investment by NRIs, FIls &

ADs should be

  
  

OCBs subject to approval

required to

  
  

by the RBI which is valid

report to the

  
  

for a period of five years.

RBI.

  
  

The investment restricted to

   
  

1 per cent by individual

   
  

NRIs/OCBs and 10 per

   
  

cent by individual FIIs.

   
  

Corporates, other than

   
  

OCBs and FIIs, are not

   
  

permitted.

   
      

3.

Disinvestment

Disinvestment as

RBI approval to be

Same as

Same as

  

approved by the RBI

dispensed with.

Phase I

Phase I

  

except where sales

   
  

are made through

   
  

stock exchange

   
  

under portfolio

   
  

investment scheme.

   

II.

BANKS

    
      

A.

Banks - Residents

    
      

1.

Loans and borrowings from overseas

ADs are permitted to

(i) Each bank may be

Same as

Same as

 

banks and correspondents including

borrow up to $ 10

allowed to borrow

Phase I except

Phase I except

 

overdrafts in nostro account

million from their

from overseas

that the ceiling

that the ceiling

  

overseas offices/

markets, short-term

will be 75 per

will be 100 per

  

correspondents

(up to one year) and

cent of

cent of

  

without any

long-term (over one

unimpaired

unimpaired

  

conditions on end

year), to the extent of

Tier I capital

Tier I capital

  

use and repayment of

50 per cent of the

with a sub-

with a sub-

  

such borrowings.

unimpaired Tier I

limit of one

limit of one

   

capital with a sub

third (i.e., 25

third (i.e.,

   

limit of one third (i.e.,

per cent of

33.33 per cent

   

16.67 per cent of

unimpaired

of unimpaired

   

unimpaired Tier I

Tier I capital)

Tier I capital)

   

capital) for short-term

for short- term

for short- term

   

borrowings.

borrowings.

borrowings.

   

(ii) No restrictions on

  
   

use of funds and

  
   

repayment. Prudential

  
   

norms regarding open

  
   

position and gap

  
   

limits to continue.

  
      

2.

Investments in overseas markets

Banks allowed to

Investments may be in

Same as

Same as

  

invest in overseas

overseas money markets,

Phase I

Phase I

  

money markets up

mutual funds and

  
  

to $ 10 million.

foreign securities. To be

  
   

allowed subject

  
   

only to (i) requirements

  
   

of Section 25 of BR Act

  
   

1949* (ii) open

  
   

position/gap limits.

  
      
      

3.

Fund based /non fund based facilities

Cleared by RBI/

To be left to banks'

Same as

Same as

 

to Indian joint ventures and wholly

Special

discretion - only

Phase I

Phase I

 

owned subsidiaries abroad

Committee.

restriction to be Section

  
   

25 of BR Act.

  
      

4.

Buyers' credit/acceptance for

Depending on

To be allowed subject

Same as

Same as

 

financing importer/their bankers for

amount cleared by

only to Section 25 of

Phase I

Phase I

 

buying goods and services from India

ADs/EXIM Bank/

BR Act.

  
 

(including financing of overseas

Working Group.

   
 

projects)

FERA approval

   
  

required from RBI.

   

*

Note :

Section 25 of the Banking, Regulation Act, 1949 stipulates that the assets in India of every bank at the close of business on the last Friday of every quarter shall not be less than 75 per cent of its demand and time liabilities in India.

5.

Accept deposits and

Not allowed other

To be allowed without

Same as

Same as

 

extend loans

than under existing

any ceilings - assets/

  
 

denominated in foreign

foreign currency

liabilities mismatch to

Phase I

Phase I

 

currencies

deposit schemes.

be taken into overall

  
 

from /to individuals

 

open position /gap

  
 

(only rupee settlement)

 

limits

  
      
      
      

6.

Forfaiting

Exim Bank alone has

All ADs should be

Same as

Same as

  

been permitted by

permitted to

Phase I

Phase I

  

RBI to do forfaiting

undertake forfaiting.

  
      

B.

Banks - Non Residents

    
      

1.

Rupee Accounts of non resident

Used only for

Forward cover to be

Same as

Non resident

 

banks

merchant based

allowed to the extent

Phase I

banks may be

  

transactions -

of balances.

 

allowed to

  

investments not

Cancelling/

 

freely open

  

allowed. Overdrafts

rebooking to be

 

rupee accounts

  

allowed upto Rs.

allowed. The present

 

with banks in

  

150 lakhs for normal

overdraft limit could

 

India without

  

business

be increased and

 

any restrictions

  

requirements for

limited investments

 

on their

  

temporary periods.

may be allowed in

 

operations.

   

rupee accounts

  
      

III.

NON BANKS - FINANCIAL

    
      

A.

Non Banks - Financial - Residents

    
      

1.

SEB I registered Indian

Not allowed

Overall ceiling of

Overall ceiling

Overall ceiling

 

investors (including Mutual Funds)

 

$ 500 million and the

of $ 1 billion.

of $ 2 billion.

 

investments overseas

 

ceiling should be so

  
   

operated that a few

  
   

large funds do not

  
   

pre-empt the overall

  
   

amount.

  
      

2.

All India Financial Institutions

Borrowings from

(i) Borrowings more

(i) Same as

(i) Same as

  

overseas markets or

than one year to

Phase I

Phase I

  

investments abroad

continue within ECB

  
  

subject to RBI/

ceiling with

  
  

Government prior

Government approval.

  
  

approval

   
   

(ii) Short-term

(ii) Short-term

(ii) Short-term

   

borrowings to be

borrowings to

borrowings to

   

allowed subject to

be allowed

be allowed

   

limits. Investments in

subject to

subject to

   

short term

limits.

limits. Invest-

   

instruments to be

Investments in

ments in short

   

permitted within

short term

term instru-

   

limits up to the extent

instruments to

ments to be

   

of liabilities maturing

be permitted

permitted

   

within one month.

within limits

within limits

    

up to the extent of

up to the extent

    

liabilities

of liabilities

    

maturing within 3.

maturing within 6

    

months

months.

      

B.

Non Banks - Non Residents

    
      

1.

FlIs

    
      

(a)

Portfolio Investment

(a) Investments in

To be allowed without

Same as

Same as

  

secondary market

RBI prior approval.

Phase I

Phase I

  

allowed once FII is

Designated ADs

  
  

registered with

would be required to

  
  

SEBI subject to 24

report to RBI

  
  

per cent ceiling

   
  

(can be increased

   
  

to 30 per cent at

   
  

the option of the

   
  

company) which

   
  

includes portfolio

   
  

investment by

   
  

NRIs, FlIs and

   
  

OCBs with a 10

   
  

per cent limit for

   
  

individual FlIs and

   
  

1 per cent by

   
  

individual NRIs/

   
  

OCBs. FERA

   
  

approval is given

   
  

by RBI which is

   
  

valid for a period

   
  

of five years.

   
      

(b)

Primary market investment/private

Primary market

RBI approval not

Same as

Same as

  

offering/private

required. Designated

Phase I

Phase I

  

placement

ADs to report to the

  
  

placement allowed

RB1.

  
  

with RBI approval

   
  

up to 15 per cent of

   
  

the new issue/

   
  

capital.

   
      

(c)

Disinvestment

(i) Disinvestment

RBI approval for

Same as

Same as

  

through stock

disinvestment to be

Phase I

Phase I

  

exchange allowed

dispensed with.

  
  

freely.

   
  

(ii) Other routes of

   
  

disinvestment

   
  

require RBI approval

   
      

(d)

lnvestments in debt instruments

Permitted to invest

Maturity restrictions

Same as

Same as

  

in dated Government

on investments in

Phase I

Phase I

  

securities of Central

debt instruments

  
  

and State

(including, treasury

  
  

Governments

bills) to be removed.

  
  

(excluding Treasury

FII investments in

  
  

Bills) both in

rupee debt securities

  
  

primary and

to be kept outside

  
  

secondary markets.

ECB ceiling but

  
  

ECB ceiling

could be part of a

  
  

includes FII

separate ceiling

  
  

investment in rupee

   
  

debt instruments.

   
  

The Debt Funds of

   
  

FIIs are also allowed

   
  

to invest in corporate

   
  

debt securities

   
  

(NCDs, Bonds, etc.)

   
  

listed or to be listed.

   
      
  

FIIs can invest in

   
  

equity and debt

   
  

(NCDs, Bonds, etc.,)

   
  

in the ratio of 70:30,

   
  

Debt Funds of FIIs

   
  

can invest upto 100

   
  

per cent in debt

   
  

instruments subject

   
  

to a ceiling,

   
  

prescribed by SEB1.

   
      

IV

INDIVIDUALS

    
      

A

Individuals -Residents

    
      

1.

Foreign currency denominated

Not permitted

To be permitted

Same as

Same as

 

deposits with banks/corporates in

 

without ceiling

Phase I

Phase I

 

India (only-rupee settlement)

    
      

2.

Financial capital transfers including

Not permitted

$ 25,000 per annum

$ 50,000 per

$ 100,000 per

 

for opening current/chequeable

  

annum

annum

 

accounts

    
      

3

Loans from non residents

Residents are

Residents to be

Residents to be

Residents to be

  

allowed to obtain

allowed to take loans

allowed to take

allowed to take

  

interest free loans on

from non residents up

loans from non

loans from non

  

non repatriation

to $ 250,000 per

residents up to

residents up to

  

basis from non

individual with

$ 500,000 per

$ 1 million per

  

resident relatives for

payment of interest

individual with

individual with

  

personal and

not exceeding

payment of

payment of

  

business purposes

LIBOR, without

interest not

interest not

  

other than

restrictions on period

exceeding

exceeding

  

investment. Other

of loan, repatriation

LIBOR,

LIBOR,

  

cases need RBI

of principal/interest

without

without

  

approval.

and use of funds.

restrictions on

restrictions on

    

period of loan,

period of loan,

    

repatriation of

repatriation of

    

principal/

principal/

    

interest and use

interest and

    

of funds.

use of funds.

      

B

Individuals : Non Residents

    
      

1

Capital transfers from non

Not allowed;

$ 25,000 per year*

$ 50,000 per

$ 100,000 per

 

repatriable assets held in India

however, a few cases

 

year*

year*

 

(including NRO and NRNR RD

allowed on

   
 

accounts)

sympathetic grounds.

   
      

2.

Foreign Direct Investment in India

(a) FDI for NRIs

No RBI permission

Same as

Same as

 

(FDI) (other than in real estate)

with repatriation

for FDI subject to

Phase I

Phase I

  

benefits are to be

reporting by ADs.

  
  

cleared by RBI/

   
  

Government under

   
  

FDI policy.

   
      
  

(b) FDI for other non

   
  

resident individuals

   
  

are to be cleared by

   
  

Government and

   
  

RBI.

   

*

No fresh NRNRRD accounts from 1997-98. On maturity the balances in the accounts get merged with other non repatriable funds or depositors can shift the maturity proceeds to a special 3 year NRE account with full repatriation benefit on maturity. If prematurely withdrawn from special NRE account, funds will get merged with other non repatriable funds of the non resident. In case of investments permitted on non repatriation basis on maturity or on disinvestment, the proceeds will be merged with other non repatriable assets.


3.

Portfolio Investment in India through

Allowed to NRIs

Allowed to all non

Same as

Same as

 

stock exchanges.

within the 24 per

residents without RBI

Phase I

Phase I

  

cent ceiling (can be

prior approval.

  
  

increased to 30 per

Designated ADs

  
  

cent at the option of

would be required to

  
  

the company) which

report to RBI.

  
  

includes portfolio

   
  

investment by NRIs,

   
  

FlIs and OCBs

   
  

subject to approval

   
  

by the Reserve Bank

   
  

which is given for a

   
  

period of five years.

   
  

The investment

   
  

restricted to 1 per

   
  

cent by individual

   
  

NRIs/OCBs and 10

   
  

per cent by

   
  

individual FlIs.

   
      

4.

Disinvestment

Disinvestment to be

RBI approval to be

Same as

Same as

  

approved by RBI

dispensed with.

Phase I

Phase I

  

except where sales

   
  

are made through

   
  

stock exchange

   
  

under portfolio

   
  

investment scheme.

   
      

V.

FINANCIAL MARKETS

    
      

1.

Foreign Exchange Market

    
      

(a)

Forward contracts

Forward contracts

To allow all

Same as

Same as

  

are allowed to be

participants in the

Phase I

Phase I. No

  

booked on the basis

spot market to

 

restrictions on

  

of business

participate in the

 

participants in

  

projections in

forward market; FlIs,

 

spot/forward

  

respect of exporters

non residents and non

 

markets i.e.,

  

and importers. Also

resident banks having

 

participation

  

forward cover

rupee assets can be

 

allowed

  

allowed for non

allowed forward cover

 

without any

  

residents for limited

to the extent of their

 

underlying

  

purposes such as

assets in India. Banks

 

exposure.

  

dividend remittance

to be allowed to quote

  
  

and freight/passage

two way in rupee to

  
  

collections.

overseas banks/

  
   

correspondents both

  
   

spot and forward

  
   

subject to their

  
   

position/gap limits.

  
   

Those with economic

  
   

exposures to be

  
   

allowed to participate

  
   

in forward market.

  
      

(b)

Authorised dealers

Authorised dealers at

All India FIs which

Same as

To allow select

  

present are only banks.

comply with the

Phase I

NBFCs to act

   

reaulatorv/prudential

 

as full-fledged

   

requirements and

 

authorised

   

fulfil well defined

 

dealers on the

   

criteria should be

 

basis of criteria

   

allowed to participate

 

similar to FIs.

   

as full-fledged ADs in

  
   

the forex market.

  
      

(c)

Products

Currently the only

All derivatives

Direct access to

Same as

  

derivative in the

including rupee based

overseas

Phase I & 11

  

rupee $ market is the

derivatives to be

markets by

 
  

forward contract.

allowed. Futures in

corporates for

 
  

ADs have been

currencies and

derivatives

 
  

allowed to enter into

interest rates to be

without routing

 
  

Rupee/$ currency

introduced with the

through ADs

 
  

swaps with

system of screen-

Phase I to

 
  

counterparties in

based trading and an

continue.

 
  

India subject to open

efficient settlement

  
  

position and gap

mechanism.

  
  

limits. Cross

   
  

currency derivatives

   
  

and interest rate

   
  

derivatives allowed

   
  

for covering

   
  

underlying

   
  

exposures - to be

   
  

routed through ADs

   
      

2.

Money Market

Banks allowed to

Market segmentation

Same as

Same as

  

lend and borrow

to be removed.

Phase I

Phase I

  

freely. FIs allowed to

Deposit rates to be

  
  

lend with no limit/

deregulated and

  
  

allowed to borrow

minimum period

  
  

within small limits.

restrictions to be

  
  

Others allowed to

removed. Restrictions

  
  

lend to primary

on participants in the

  
  

dealers for minimum

money market to be

  
  

amount of Rs. 10

freed. Level playing

  
  

crores. MFs

field for all banks , FIs

  
  

participate only as

and NBFCs regarding

  
  

lenders. Residual

reserve requirements

  
  

restrictions on

and prudential norms.

  
  

deposit rates

   
  

applicable to public

   
  

deposits; minimum

   
  

period for CDs/

   
  

MMMFs/fixed

   
  

deposits specified.

   
      
      

3.

Government Securities Market

A number of

(i) Access to FIIs in

(i) The OPD to

(i) The OPD to

  

measures have been taken to

Treasury bill market.

take up part of

take full

  

strengthen the market for

(ii) RBI to develop

issue of dated

responsibility for

  

Government

Treasury bill merket

securities and all

primary issues of

  

securities such as a

offering tow-way quotes.

Treasury bills. (ii)

all Treasury bills

  

move towards market

(iii) Government

RBI to discontinue

and dated

  

related rates of

Securities (including

participation in

securities.

  

interest introduction

Treasury bills)

91 day Treasury

(ii) Full

  

of auctions and new

futures to be introduced.

bill primary

underwriting of

  

instruments and

(iv) RBI to provide

auctions and it

issues by PDs with

  

measures to develop

Liquidity Adjustment

should only

RBI discontinuing

  

the secondary market

Facility to PDs

participate in

participation in

  

through Primary

through Repos and

the secondary

primary market

  

Dealers (PDs) and

Reverse Repos.

market. (iii)

for dated

  

Satellite Dealers

(v) Dedicated gilt funds

Number of PDs

securities.

  

(SDs).

to be given strong and

and SDs to be

 
   

exclusive fiscal

further increase

 
   

incentives to individuals

with a quantum

 
   

to develop the retail

jump in share of

 
   

segment. (vi) Number

PDs in

 
   

of PDs and SDs to

underwriting with

 
   

increase. Progressive

strong incentives

 
   

increase in share of PDs

through

 
   

in underwriting.

underwriting

 
   

Commission to PDs to be

commission.

 
   

related to PDs to be

  
   

related to

  
   

underwriting

  
   

commitment (vii).

  
   

Government to

  
   

initiate action for setting

  
   

up of an Office of Public

  
   

Debt (OPD) (viii)

  
   

Delivery Versus

  
   

Payment (DVP) system

  
   

to be fully automated for

  
   

all securities on a real

  
   

time basis with proper

  
   

safeguards for ensuring

  
   

that risks are controlled.

  
      

4.

Gold

At present, there are

(i) Banks and financial

Steps to be

Same as Phase

  

restrictions on

institutions fulfilling

taken by

I and 11

  

import of gold. There

well- defined criteria

Government

 
  

are only three

to be allowed

and the RBI for

 
  

channels through

to operate freely both in

developing, a

 
  

which import of gold is

domestic and

well regulated

 
  

allowed

international markets.

market in India

 
  

(1) through

(ii) Sale of gold by

for gold and

 
  

channels agencies

banks and FIs

gold derivatives

 
  

(ii) through returning

included under

including,

 
  

NRIs and (iii)

(i) above to be

forward

 
  

through special

freely allowed to all

trading. Both

 
  

import Iicences.

residents. (iii) Banks to

residents and

 
   

be allowed to offer gold

non residents

 
   

denominated deposits

to be allowed

 
   

and loans

to operate in

 
   

(iv) Banks fulfilling

this market.

 
   

well-defined

  
   

criteria may be allowed

  
   

to mobilise household

  
   

gold and provide

  
   

working capital gold

  
   

loans to jewellery

  
   

manufacturers as also

  
   

traders. (v) Banks may

  
   

be allowed to offer

  
   

deposit schemes akin

  
   

to GAPs (gold

  
   

accumulation plans)

  
      

5.

Participation in

Not allowed

To be allowed

Same as

Same as

 

international commodity

  

Phase I

Phase I

 

markets

    

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