ternal e tor in ndia 15.9
(investment by Ltd. companies in foreign
neer
countries allowed) per annum.
(ii) Indian corporate are allowed to prepay The Nominal Effective Exchange Rate (NEER) of
their external commercial borrowings the rupee is a weighted average of exchange rates
(ECBs) via automatic route if the loan is before the currencies of India’s major trading
above $ 500 million per annum. partners.
(iii) Individuals are allowed to invest in
reer
foreign assets, shares, etc., upto the level
of $ 2,50,000 per annum. When the weight of inflation is adjusted with the
(iv) Unlimited amount of gold is allowed to NEER, we get the Real Effective Exchange Rate
be imported (this is equal to allowing (REER) of the rupee. Since inflation has been on
full convertibility in capital account via the higher side in recent months, the REER of the
current account route, but not feasible for rupee has been more against it than the NEER.
everybody) which is not allowed now.
eff
The Second Committee on the Capital Account
Convertibility (CAC)—again chaired by S.S. The Extended fund Facility (EFF) is a service
Tarapore—handed over its report in September provided by the IMF to its member countries
2006 on which the RBI/the government is having which authorises them to raise any amount of
consultations. foreign exchange from it to fulfil their BoP crisis,
but on the conditions of structural reforms in the
lerms economy put by the body. It is the first agreement
of its kind. India had signed this agreement with
India announced the Liberalised Exchange Rate the IMF in the financial year 1981–82.
Mechanism System (LERMS) in the Union
Budget 1992–93 and in March 1993 it was imf conDitions on inDia
operationalised. India delinked its currency from
The BoP crisis of the early 1990s made India
the fixed currency system and moved into the era
borrow from the IMF which came on some
of floating exchange-rate system under it. conditions. The medium term loan to India was
Indian form of exchange rate is known as the given for the restructuring of the economy on the
‘dual exchange rate’, one exchange rate of rupee following conditions:
is official and the other is market-driven.16 The (i) Devaluation of rupee by 22 per cent (done
market-driven exchange rate shows the actual in two consecutive fortnights—rupee fell
tendencies of the foreign currency demand and from ‘21 to ‘27 against every US Dollar).
supply in the economy vis-á-vis the domestic (ii) Drastic custom cut to a peak duty of 30
currency. It is the market-driven exchange rate per cent from the erstwhile level of 130
which affects the official rate and not the other per cent for all goods.
way round. (iii) Excise duty to be increased by 20 per cent
16. Ministry of Finance, LERMS, Union Budget 1992-93, to neutralise the loss of revenue due to
GoI, MoF, N. Delhi. custom cut.