The Narendra Modi government is planning to bring some amendments to the Foreign Exchange Management Act (FEMA) in the upcoming winter session of Parliament to encourage remittances by reducing the cost of transactions associated with them.
This is among a number of measures being contemplated by policymakers to control the current account deficit (CAD). The other measures being considered include partial or full rupee trade with Iran and Venezuela for oil, with Russia for gold and diamond, and a rupee-renminbi trade with China.
These are over and above the measures already carried out. On September 26, the government had raised import duties on 19 items, including consumer electronics, diamonds, jewellery, jet fuel, and leather footwear, in a bid to curtail non-essential imports and bridge the CAD. More tariff hikes are expected, this time on metals and minerals and on more electronic items.
“Remittances by expats into India from certain countries are subject to very high transaction costs, especially at the level of banks. Some of these countries are Bangladesh, Afghanistan, and Pakistan. The government wants to reduce these costs to increase the inflow of remittances,” said an official.
Remittances are one of the largest sources of foreign inflows for India. According to the data available on the Reserve Bank of India’s website, net workers’ remittances in April-June 2018 were $11.5 billion. According to the World Bank, India was the largest receiver of remittances in 2017, with inflows of $69 billion. The World Bank also says that three of the five highest cost corridors for sending remittances involved India: South Africa to India, Japan to India, and Thailand to India.
The proposal of enabling more remittances was discussed between the finance and commerce ministries in a number of formal and informal meetings, including last week at an inter-ministerial meeting chaired by Commerce Minister Suresh Prabhu. The other proposals discussed included an agreement with China to trade through native currencies of both nations, doing away with the US dollar, a barter mechanism to buy crude oil from Iran, Venezuela, and Russia, partial or full rupee with these nations as well as further monetisation of domestic gold assets.