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.