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(LERMS) The Liberalized Exchange Rate Management System (LERMS) which became effective from 1st March 1992, has been modified with effect from March 1, 1993. The salient features of the new arrangement are set out below: 1. Effective from March 1, 1993, all foreign exchange transactions (receipts/payments both under current and capital accounts of Balance of Payments) would be put through by authorized dealers at market-determined rates of exchange. Foreign exchange receipts/payments would, however, be subject to Exchange Control regulations. Foreign exchange receipts should be surrendered by residents to authorized dealers except where residents have been permitted, either under a general or special permission of Reserve Bank, to retain them either with banks in India or abroad. 2. Authorized dealers will be free to retain the entire foreign exchange receipts surrendered to them for being sold for permissible transactions and are not required to surrender to Reserve Bank any portion of such receipts. 3. Government of India has issued a general order in supersession of all its previous orders, under Section 40 of the Reserve Bank of India Act, 1934. Pursuant to the order, Reserve Bank will sell to any authorized person at its offices/branches, U.S. dollar for meeting foreign currency payments at its exchange rate based on the market rate only for such purposes as are approved by the Central Government. Central Government has approved the following purposes for sale of U.S. dollar by the Reserve Bank:
4. Reserve Bank of India will buy spot U.S. dollar from any authorized person at its offices/branches referred to in the aforesaid section at its exchange rate. Reserve Bank will not ordinarily buy spot Pound Sterling, Deutsche Mark or Japanese Yen. It will not ordinarily buy forward any currency. Any offer of foreign currency to the Reserve Bank will be governed by the provisions of paragraph 9.6 of the Exchange Control Manual. If the offer is not covered by the aforesaid provisions, the authorized dealer may approach the Department of External Investments and Operations at Mumbai. 5. No forward sale in any currency will be made by the Reserve Bank of authorized dealers. It will, however, be prepared to enter into swap transactions under which it will buy U.S. dollar spot and sell forward for two to six months. 6. The purchases/sales of U.S. dollar will be made by the Reserve Bank in multiples of U.S. $ 5,000 with a minimum of U.S. $ 25,000. The procedure for such sales/purchases will be the same as is being followed at present except that in respect of purchases from the Reserve Bank, the revised format (RBM 4) has to be used. 7. Forward Commitments/Swaps All outstanding forward commitments and swap liabilities in respect of transactions in the inter-bank market and with Reserve Bank as on 27.2.1993 will be honored at the contracted rates. Customer forward contracts will also be honored at the contracted rate unless cancelled by the customer. 8. Resident Foreign Currency Accounts The existing instructions in terms of which foreign currency accounts with banks in India are allowed to be maintained will continue. No Rupee finance is admissible on the security of funds in these accounts. 9 Exim scrips/REP licences/Advance licences In addition to what is stated in paragraph above, the purchase of Exim scrips and such other eligible licences valid for import from GCA countries at a reasonable premium may be considered. 10. Asian Clearing Union The rates of exchange for transactions with countries belonging to the Asian Clearing Union will be at rates announced by the Reserve Bank of India as hitherto. Such rates will be determined on the basis of prevailing market rates. 11. Bilateral Trade Arrangements The Rupee trade and payment arrangements, wherever they exist, will continue for the period announced by the Reserve Bank of India from time to time. 12.Market intervention The Reserve Bank of India may also undertake, at its discretion, purchases/sales of foreign exchange in the market.
Source: Doing Business with India
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