Rbi Feels Eefc Has Lost Relevance, Mulls Abolition

The Reserve Bank of India may scrap the export earners' foreign currency account facility.

RBI deputy governor Jagdish Capoor told Business Standard that "The RBI will review the EEFC scheme again and we feel that exporters do not even need the comfort of this scheme."

When this scheme was introduced, there were capital controls and this was an export-inducing factor, Capoor pointed out.

On August 14, the RBI issued a circular instructing all authorised dealers to ask all their corporate clients to convert 50 per cent of their outstandings in EEFC accounts as on August 11 by August 23. The central bank also slashed the EEFC retention limit to 50 per cent of the earlier limits.

 

This step is expected to bring in $1billion as the total outstanding under the scheme was to the tune of $2 billion. The RBI took the measure to prop up the dollar supply and tide over the demand-supply mismatches in the forex market.

While Capoor refused to comment on whether the expected $1 billion will actually come to the market as a result of this measure, he did say that the RBI was aware that corporates could also be using their EEFC earning towards meeting their import remittances.

Senior bankers have hailed the RBI decision to review the EEFC scheme and a possible abolition of this facility which has lost its relevance in a freely convertible regime.

"There is no need to offer this special facility to the exporters at this point of time as more often the EEFC balances are used for some other purposes," a banker pointed out.

The rupee has been continuously depreciating on the back of corporate demand and thin supply of dollars. It has depreciated by 5.2 per cent against the dollar since the beginning of the current fiscal despite the RBI's liquidity tightening measures announced last month.

The RBI has hiked the cash reserve ratio and the benchmark bank rate by half a percentage point and one percentage point, respectively, and tried to talk the rupee up unsuccessfully so far.

Till last Friday the supplies were still meagre with "corporates still clarifying the RBI instructions and discussing options".

According to dealers, August 22 will be a crucial day for the rupee with most of supplies coming in on that day as the deadline is drawing to a close of August 23.