3 months after RBI nod, new foreign spending cap awaits clearance

Recently RBI and the ministry have run into differences over who will manage the public debt office and that of managing government securities.

Three months after the annual limit for Indians to spend abroad has been raised to $2,50,000 by the Reserve Bank of India (RBI), it remains inoperative. The reason: the finance ministry is yet to issue the gazette notification for the raised limit.

Such a delay has never happened before. Consequently banks are refusing to accept any sum above $1,25,000 from individuals for spending abroad, in a year.

Reserve Bank of India Governor Raghuram Rajan had made the announcement in February 2, 2015. The regulator has sent the papers seeking the permission to the department of financial services in the finance ministry. Once the gazette notification is made, the RBI would have issued the relevant circular for the banks to act upon.

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Recently RBI and the ministry have run into differences over who will manage the public debt office and that of managing government securities.

On Thursday, finance minister Arun Jaitley cleared the air saying the existing arrangements will continue till further consultations are held between the two.

A related theme in the list of differences was who will decide the policy on the inward and outward flow of foreign exchange into the economy.

The management of the liberalised remittance scheme (LRS) is part of that management problem. It is now expected that after Jaitley’s statement in Parliament this too would be sorted out and the files for gazette notification cleared accordingly. A government source confirmed that a decision on the issue is pending with the ministry.

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An RBI source said the bank has for some time begun to accept on a case-by-case basis applications — like cases of medical emergency, for higher remittance till the relevant notifications are in place.

The LRS has been a showpiece for Indian financial sector authorities to demonstrate how resilient the economy has become to foreign exchange fluctuations.

The first liberalisation of the stiff limits was carried out by the NDA government in the early 2000s.

But with the foreign exchange reserves with the economy dipping alarmingly in 2013 when the value of rupee plunged, the RBI reduced the sum to $ 75,000.

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As conditions improved in the forex market over the next year with the coming to power of a stable government, the limit was progressively relaxed to $ 125,000 in June 2014 again. There are no end-use restrictions on the money to be spent except for prohibited foreign exchange transactions such as margin trading and lotteries.

On the RBI portal only this notification is available, as the clearance for the doubled limit announced in February this year to $250,000, is still not through.