The Foreign Contribution (Regulation) Act (FCRA) was revised on Saturday by the Home Ministry, enabling Indians to receive up to Rs 10 lakh yearly from their relatives overseas.
Before, they were permitted to receive up to Rs 1 lakh annually without informing the authorities. This comes after the government increased the import tax on gold from 7.5% to 12.5% in an effort to deter purchases of the precious metal, which increases the trade imbalance and puts pressure on the currency and foreign exchange reserves.
Both of the actions, which were enacted within the span of two days, are intended to reduce money leaving the country while increasing remittances into it. According to experts, raising the relative remittance cap from Rs. 1 lakh to Rs. 10 lakh will enhance the amount of money entering India and stabilise both the foreign reserves and the rupee.
Similar to this, a rise in the import tax on gold from 7.5% to 12.5% will deter purchases because it will drive up the cost of the metal in India. A rise in capital inflow and a decline in capital outflow due to imports of gold would aid in stabilising the currency, forex reserves, and reducing the trade deficit, which grew considerably in the months of April and May 2022.
The trade imbalance reached its highest levels in the months of April and May 2022, totaling $44.7 billion over the course of two months at highs of $20.1 billion and $24.6 billion, respectively. In contrast, the trade imbalance for the months of April and May 2021 was $21.8 billion. Gold also considerably contributed to the growth in the same, which is being caused by the import of petroleum. As opposed to $670 million in the same month last year, gold imports in May 2022 totaled $6 billion. According to experts, raising the import tariff on gold will raise the cost of importing it and deter people from buying and using it.
Although the currency reserves are substantial, there is worry about their future reduction. India’s foreign exchange reserves decreased from $642 billion at the end of October 2021 to $593 billion on June 24, 2022. Thus, during the past eight months, the amount of foreign exchange reserves has decreased by over $50 billion. According to experts, even in the forward market, the currency reserves have decreased by about $20 billion at that time.
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