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English · हिन्दी · తెలుగు · தமிழ் · മലയാളം · मराठी · ಕನ್ನಡ

Exchange rates, foreign exchange reserves and foreign capital

ಕನ್ನಡದಲ್ಲಿ ವಿವರಣೆ

External sector · Part 2 / 2 · Fact-checked on · how we check

Written with AI from the sources listed at the bottom of this page, then fact-checked by a separate AI.

How the exchange rate is set, depreciation and appreciation versus devaluation and revaluation, their effects, fixed, floating and managed regimes and the impossible trinity, India's path from par value and the 1975 basket peg to LERMS (1992) and a unified market rate (1993), rupee trade settlement (2022), NEER and REER, the four components of the foreign exchange reserves and their adequacy, FDI and its 10 per cent threshold, routes, prohibited sectors and Press Note 3, FPI under SEBI, ECBs, NRI deposits and external debt.

Each idea is explained first in Kannada (ಕನ್ನಡ), ending with the English and Hindi exam terms, followed by the same point in exam English. UPSC Prelims is in English or Hindi, so understand it in Kannada and revise it in English.

ಮೊದಲ ಭಾಗದಲ್ಲಿ ಪಾವತಿ ಶೇಷ ಎಂಬ ಪುಸ್ತಕದಲ್ಲಿ ಏನೇನು ಬರೆಯುತ್ತಾರೆ ಎಂದು ನೋಡಿದೆವು. ಈಗ ಆ ವ್ಯವಹಾರಗಳನ್ನೆಲ್ಲ ಜೋಡಿಸುವ 'ಬೆಲೆ' — ವಿನಿಮಯ ದರ. ಸಂತೆಯಲ್ಲಿ ತರಕಾರಿ ಬೆಲೆ ದಿನಾ ಬದಲಾಗುವಂತೆ ಡಾಲರಿನ ಬೆಲೆಯೂ ಬದಲಾಗುತ್ತದೆ; ಅದನ್ನು ಯಾವುದು ಬದಲಿಸುತ್ತದೆ, ಬದಲಾದರೆ ನಮಗೇನಾಗುತ್ತದೆ ಎಂದು ನೋಡೋಣ. ನಂತರ ದೇಶ ಕೂಡಿಟ್ಟ ವಿದೇಶಿ ವಿನಿಮಯ ಮೀಸಲು, ಕೊನೆಗೆ ವಿದೇಶಿ ಹೂಡಿಕೆಯ ಬಗೆಗಳು ಮತ್ತು ಅವುಗಳ ನಿಯಮಗಳು. (→ English: exchange rate · हिन्दी: विनिमय दर)

In exam EnglishPart 1 showed what flows into and out of India's balance of payments. This part looks at the price that connects those flows and at the stock of foreign currency that cushions them. It begins with the exchange rate: what moves it, what a rise or fall does to the economy, and the difference between a market movement and an official decision. It then follows how India's exchange rate system changed from a fixed rate to a market-determined one after 1991, and how economists measure the rupee against many currencies at once. Next come the foreign exchange reserves, what they are made of and how much is enough. The second half sorts foreign capital into its main forms and explains the rules for each.

ಡಾಲರ್ ಕೂಡ ಸಂತೆಯ ಒಂದು ಸರಕು ಎಂದುಕೊಳ್ಳಿ. ಆಮದುದಾರರು, ವಿದೇಶದಲ್ಲಿ ಓದುವ ಮಕ್ಕಳ ಪೋಷಕರು, ಹಣ ಹಿಂದೆ ಒಯ್ಯುವ ವಿದೇಶಿ ಹೂಡಿಕೆದಾರರು ಡಾಲರ್ 'ಕೊಳ್ಳುವವರು'; ರಫ್ತುದಾರರು, ಕೊಲ್ಲಿಯಿಂದ ಹಣ ಕಳಿಸುವವರು, ಇಲ್ಲಿ ಹೂಡಿಕೆ ಮಾಡುವವರು 'ಮಾರುವವರು'. ಒಂದು ಡಾಲರಿಗೆ 84 ರೂಪಾಯಿ ಇದ್ದದ್ದು 87 ಆದರೆ ನಮ್ಮ ರೂಪಾಯಿ ದುರ್ಬಲವಾಯಿತು — ಇದೇ ಮೌಲ್ಯ ಕುಸಿತ. 87ರಿಂದ 84ಕ್ಕೆ ಬಂದರೆ ರೂಪಾಯಿ ಬಲವಾಯಿತು. (→ English: depreciation (of a currency) · हिन्दी: मूल्यह्रास)

In exam EnglishThe exchange rate is the price of one currency in terms of another, for example the number of rupees needed to buy one US dollar. In a market-based system it is set by the demand for and supply of foreign exchange. Dollars are demanded by importers, by Indians travelling or studying abroad, and by foreign investors taking money out; they are supplied by exporters, by workers sending remittances and by foreign investors bringing money in. When the rate moves from ₹84 to ₹87 per dollar, each dollar buys more rupees, so the rupee has lost value: this is a depreciation (of a currency). A move the other way, from ₹87 to ₹84, is an appreciation of the rupee.

ರೂಪಾಯಿ ದುರ್ಬಲವಾದರೆ ನಮ್ಮ ಅಕ್ಕಿ, ಔಷಧಿ ವಿದೇಶಿಗರಿಗೆ ಅಗ್ಗವಾಗುತ್ತವೆ — ರಫ್ತುದಾರನಿಗೆ ಲಾಭ. ಆದರೆ ಪೆಟ್ರೋಲಿಗಾಗಿ ಕೊಳ್ಳುವ ತೈಲ ದುಬಾರಿಯಾಗುತ್ತದೆ, ಬೆಲೆ ಏರುತ್ತದೆ; ಡಾಲರಿನಲ್ಲಿ ಸಾಲ ಪಡೆದ ಕಂಪನಿಗೆ ಹೊರೆ ಹೆಚ್ಚುತ್ತದೆ. ಪದಗಳ ವ್ಯತ್ಯಾಸ ನೆನಪಿಡಿ: ಮಾರುಕಟ್ಟೆಯಲ್ಲಿ ತಾನಾಗಿ ಬಿದ್ದರೆ 'ಮೌಲ್ಯ ಕುಸಿತ'; ಸ್ಥಿರ ದರ ಪದ್ಧತಿಯಲ್ಲಿ ಸರ್ಕಾರ ಉದ್ದೇಶಪೂರ್ವಕವಾಗಿ ಇಳಿಸಿದರೆ 'ಅಪಮೌಲ್ಯೀಕರಣ' — 1966ರಲ್ಲಿ ಮತ್ತು 1991ರ ಜುಲೈಯಲ್ಲಿ ಹಾಗಾಯಿತು. (→ English: devaluation · हिन्दी: अवमूल्यन)

In exam EnglishA weaker rupee has mixed effects. Indian goods become cheaper for foreign buyers, which can help exports, while imports cost more in rupees, which can discourage them. Because India imports most of its crude oil, a falling rupee also feeds into fuel prices and so into inflation, and it raises the rupee cost of repaying loans taken in foreign currency. A stronger rupee works the other way: cheaper imports and lower imported inflation, but harder conditions for exporters. Depreciation and appreciation describe changes brought about by the market. A devaluation or a revaluation is a deliberate official decision to lower or raise the value of a currency under a fixed or pegged system. India devalued the rupee in 1966 and in July 1991; since the rate became market-determined, the correct word for a falling rupee is depreciation.

ವಿನಿಮಯ ದರಕ್ಕೆ ಮೂರು ದಾರಿಗಳು. ಸ್ಥಿರ ದರ — ಸರ್ಕಾರ 'ಇದೇ ಬೆಲೆ' ಎಂದು ಘೋಷಿಸಿ ಕಾಪಾಡುತ್ತದೆ, ಪಡಿತರ ಅಂಗಡಿಯ ಬೆಲೆಯಂತೆ. ತೇಲುವ ದರ — ಸಂತೆಯಂತೆ ಪೂರ್ತಿ ಮಾರುಕಟ್ಟೆ ನಿರ್ಧರಿಸುತ್ತದೆ. ಭಾರತ ಅನುಸರಿಸುವುದು ನಿರ್ವಹಿತ ತೇಲುವ ವಿನಿಮಯ ದರ — ಬೆಲೆ ಮಾರುಕಟ್ಟೆಯದು, ಆದರೆ ತೀರಾ ಏರಿಳಿತವಾದರೆ ರಿಸರ್ವ್ ಬ್ಯಾಂಕ್ ಮಧ್ಯಪ್ರವೇಶಿಸುತ್ತದೆ. 'ಅಸಾಧ್ಯ ತ್ರಯ' ಎಂದರೆ ಸ್ಥಿರ ದರ, ಹಣದ ಮುಕ್ತ ಓಡಾಟ, ಸ್ವತಂತ್ರ ಹಣಕಾಸು ನೀತಿ — ಮೂರೂ ಒಟ್ಟಿಗೆ ಸಾಧ್ಯವಿಲ್ಲ; ಎರಡು ಆರಿಸಿದರೆ ಮೂರನೆಯದನ್ನು ಬಿಡಬೇಕು. (→ English: managed float · हिन्दी: प्रबंधित अस्थिर विनिमय दर)

In exam EnglishCountries choose among three broad exchange rate regimes. Under a fixed rate, the government or central bank sets the value and defends it by buying and selling foreign currency; the gold standard and the Bretton Woods system of 1944, under which currencies had par values against the US dollar and the dollar was linked to gold, were fixed systems, and Bretton Woods broke down in the early 1970s. Under a free float, the market alone sets the rate. Most emerging economies, India included, follow a managed float, in which the market sets the rate but the central bank steps in when movements become disorderly. Behind these choices lies the 'impossible trinity': a country cannot at the same time keep a fixed exchange rate, allow free movement of capital and run an independent monetary policy. It can have any two, but must give up the third.

ನಮ್ಮ ರೂಪಾಯಿಯ ಕಥೆ ಹೀಗೆ ಸಾಗಿತು: ಮೊದಲು ಸರ್ಕಾರ ನಿಗದಿಪಡಿಸಿದ ಸ್ಥಿರ ಮೌಲ್ಯ, 1966ರಲ್ಲಿ ಅಪಮೌಲ್ಯೀಕರಣ; 1975ರಿಂದ ಕೆಲವು ದೇಶಗಳ ಕರೆನ್ಸಿಗಳ 'ಬುಟ್ಟಿ'ಯೊಂದಿಗೆ ನಂಟು. 1991ರ ಬಿಕ್ಕಟ್ಟಿನ ನಂತರ 1992ರಲ್ಲಿ ಎರಡು ದರದ ಪದ್ಧತಿ — ಗಳಿಕೆಯ 60 ಶೇಕಡಾ ಮಾರುಕಟ್ಟೆ ದರಕ್ಕೆ, 40 ಶೇಕಡಾ ಸರ್ಕಾರಿ ದರಕ್ಕೆ. 1993ರ ಮಾರ್ಚ್‌ನಿಂದ ಒಂದೇ ಮಾರುಕಟ್ಟೆ ದರ. ಈಗ ರಿಸರ್ವ್ ಬ್ಯಾಂಕ್ ಒಂದು ನಿರ್ದಿಷ್ಟ ವಿನಿಮಯ ದರವನ್ನು ಕಾಪಾಡುವುದಿಲ್ಲ; ತೀರಾ ಅಲುಗಾಟ ಬಂದರೆ ಮಾತ್ರ ಇಳಿಯುತ್ತದೆ — ನದಿಯ ಹರಿವನ್ನು ತಡೆಯುವುದಿಲ್ಲ, ಪ್ರವಾಹಕ್ಕೆ ಒಡ್ಡು ಮಾತ್ರ ಕಟ್ಟುತ್ತದೆ. 2022ರಿಂದ ವಿದೇಶಿ ವ್ಯಾಪಾರವನ್ನು ರೂಪಾಯಿಯಲ್ಲೂ ಲೆಕ್ಕ ಮಾಡಬಹುದು. (→ English: exchange rate · हिन्दी: विनिमय दर)

In exam EnglishIndia's own path shows each regime in turn. After independence the rupee had an official par value, and it was devalued in June 1966. After Bretton Woods collapsed, the rupee was linked from September 1975 to a basket of the currencies of India's main trading partners, with the RBI announcing the rate. In March 1992 the Liberalised Exchange Rate Management System (LERMS) brought in a dual rate: 60 per cent of foreign exchange earnings could be converted at the market rate and 40 per cent had to be sold at the official rate for essential imports and government needs. In March 1993 the two rates were unified into a single market-determined rate. Since then the RBI has said that it intervenes to curb excessive volatility, not to defend any particular level. In July 2022 it also allowed exports and imports to be invoiced and settled in rupees.

ನಾವು ಅಮೆರಿಕದೊಂದಿಗೆ ಮಾತ್ರವಲ್ಲ, ಅನೇಕ ದೇಶಗಳೊಂದಿಗೆ ವ್ಯಾಪಾರ ಮಾಡುತ್ತೇವೆ. ಆದ್ದರಿಂದ ರೂಪಾಯಿಯನ್ನು ಪ್ರತಿ ದೇಶದ ಕರೆನ್ಸಿಯೊಂದಿಗೆ ಹೋಲಿಸಿ, ಆ ದೇಶದೊಂದಿಗಿನ ನಮ್ಮ ವ್ಯಾಪಾರದ ಪ್ರಮಾಣಕ್ಕೆ ತಕ್ಕಂತೆ ಸರಾಸರಿ ತೆಗೆಯುತ್ತಾರೆ — ಅದೇ NEER. ಈಗ ಊಹಿಸಿ: ರೂಪಾಯಿಯ ಮೌಲ್ಯ ಬದಲಾಗಿಲ್ಲ, ಆದರೆ ನಮ್ಮಲ್ಲಿ ಬೆಲೆಗಳು ಹೊರಗಿಗಿಂತ ವೇಗವಾಗಿ ಏರಿದವು. ಆಗ ನಮ್ಮ ವಸ್ತುಗಳು ವಿದೇಶಿಗರಿಗೆ ದುಬಾರಿಯಾಗುತ್ತವೆ; ಇದನ್ನು ತೋರಿಸುವುದೇ ನೈಜ ಪರಿಣಾಮಕಾರಿ ವಿನಿಮಯ ದರ. ಇದು 100ಕ್ಕಿಂತ ತುಂಬಾ ಮೇಲಿದ್ದರೆ ನಮ್ಮ ರಫ್ತು ಸ್ಪರ್ಧೆಯಲ್ಲಿ ಸ್ವಲ್ಪ ಹಿಂದೆ ಬೀಳುತ್ತಿದೆ ಎಂದರ್ಥ. (→ English: real effective exchange rate · हिन्दी: वास्तविक प्रभावी विनिमय दर)

In exam EnglishThe rupee-dollar rate tells only part of the story, because India trades with many countries. The nominal effective exchange rate (NEER) is a weighted average of the rupee's exchange rates against a basket of currencies, each weighted by its share in India's trade. The real effective exchange rate (REER) goes one step further and adjusts the NEER for differences in inflation between India and those partners, so it measures how competitive Indian goods really are. The RBI publishes both, in a 6-currency and a 40-currency version, as index numbers against a base year set at 100. Suppose the rupee holds steady against other currencies but Indian prices rise faster than prices abroad: the NEER barely moves, yet the REER rises, meaning Indian goods have become dearer for foreign buyers. So when the REER sits well above 100, the rupee has gained in real terms and exporters find it harder to compete on price.

ವಿದೇಶಿ ವಿನಿಮಯ ಮೀಸಲು ಎಂದರೆ ದೇಶ ಕಷ್ಟಕಾಲಕ್ಕಾಗಿ ಕೂಡಿಟ್ಟ 'ಚಿನ್ನದ ಪೆಟ್ಟಿಗೆ'. ಅದರಲ್ಲಿ ನಾಲ್ಕು ಕೋಣೆಗಳು: ವಿದೇಶಿ ಕರೆನ್ಸಿ ಆಸ್ತಿಗಳು (ಅತಿ ದೊಡ್ಡ ಕೋಣೆ), ಚಿನ್ನ, ಐಎಂಎಫ್ ಸೃಷ್ಟಿಸಿದ ವಿಶೇಷ ಎಳೆತ ಹಕ್ಕುಗಳು, ಐಎಂಎಫ್‌ನಲ್ಲಿ ನಮ್ಮ ಪಾಲು. ರಫ್ತು ನಿಂತರೂ ಆಮದಿಗೆ ಹಣ ಕೊಡಲು, ಸಾಲ ತೀರಿಸಲು, ರೂಪಾಯಿಯ ಅಲುಗಾಟ ತಗ್ಗಿಸಲು ಇವು ನೆರವಾಗುತ್ತವೆ. ಎಷ್ಟು ತಿಂಗಳ ಆಮದಿಗೆ ಸಾಕು ಎಂಬುದು ಒಂದು ಅಳತೆ. ರಿಸರ್ವ್ ಬ್ಯಾಂಕ್ ಡಾಲರ್ ಕೊಂಡಾಗ ಹೊರಬಂದ ರೂಪಾಯಿಯನ್ನು ಮತ್ತೆ ಹೀರಿಕೊಳ್ಳುವುದನ್ನು 'ಸ್ಟೆರಿಲೈಸೇಶನ್' ಎನ್ನುತ್ತಾರೆ. (→ English: foreign exchange reserves · हिन्दी: विदेशी मुद्रा भंडार)

In exam EnglishIndia's foreign exchange reserves, held and managed by the RBI under the RBI Act and FEMA, have four components: foreign currency assets (by far the largest, invested mainly in safe foreign government securities and deposits), gold, Special Drawing Rights (an international reserve asset created by the IMF in 1969), and the reserve tranche position, India's readily drawable claim on the IMF. Reserves are a safety net: they pay for imports if export earnings dry up, meet external debt payments, reassure investors, and give the RBI the means to smooth the rupee. Adequacy is judged by measures such as import cover (how many months of imports the reserves can pay for) and the ratio of reserves to short-term external debt. When the RBI buys dollars to stop the rupee rising, it releases rupees into the system; it can absorb them through open market operations or the Market Stabilisation Scheme, a process called sterilisation.

ವಿದೇಶಿ ನೇರ ಹೂಡಿಕೆ ಎಂದರೆ ವಿದೇಶಿಗರು ನಮ್ಮ ದೇಶದಲ್ಲಿ 'ಮನೆ ಕಟ್ಟಿ ವಾಸಿಸುವುದು' ಇದ್ದಂತೆ — ಕಂಪನಿಯಲ್ಲಿ ದೀರ್ಘಾವಧಿ ಪಾಲು, ನಿರ್ವಹಣೆಯಲ್ಲಿ ಧ್ವನಿ. ಪಟ್ಟಿ ಮಾಡಿದ ಕಂಪನಿಯಲ್ಲಿ 10 ಶೇಕಡಾ ಅಥವಾ ಹೆಚ್ಚು ಪಾಲು ಪಡೆದರೆ ಅದು ಈ ಹೂಡಿಕೆ; ಪಟ್ಟಿ ಮಾಡದ ಕಂಪನಿಯಲ್ಲಿ ಎಷ್ಟು ಹಾಕಿದರೂ ಇದೇ. ಎರಡು ದಾರಿಗಳು: ಸ್ವಯಂಚಾಲಿತ ದಾರಿ — ಮುಂಚಿತ ಅನುಮತಿ ಬೇಡ, ನಂತರ ರಿಸರ್ವ್ ಬ್ಯಾಂಕಿಗೆ ತಿಳಿಸಿದರೆ ಸಾಕು; ಸರ್ಕಾರಿ ದಾರಿ — ಸಂಬಂಧಿತ ಸಚಿವಾಲಯದ ಅನುಮತಿ ಬೇಕು. (→ English: foreign direct investment · हिन्दी: प्रत्यक्ष विदेशी निवेश)

In exam Englishforeign direct investment is investment by a non-resident that brings a lasting interest in, and usually a say in managing, an Indian enterprise. The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 draw the line precisely: any investment by a person resident outside India in an unlisted Indian company counts as FDI, and so does investment of 10 per cent or more of the post-issue paid-up equity capital, on a fully diluted basis, of a listed company. This 10 per cent threshold follows the recommendation of a committee chaired by Arvind Mayaram in 2014. FDI enters by one of two routes. Under the automatic route no prior approval is needed; the investment is only reported to the RBI afterwards. Under the government route, approval comes from the ministry or department concerned through an online facilitation portal, after the Foreign Investment Promotion Board was abolished in 2017.

ವಿದೇಶಿ ನೇರ ಹೂಡಿಕೆಯನ್ನು ಏಕೆ ಸ್ವಾಗತಿಸುತ್ತಾರೆ? ಕಾರ್ಖಾನೆಯನ್ನು ಮಧ್ಯಾಹ್ನದೊಳಗೆ ಮಾರಿ ಹೋಗಲು ಆಗುವುದಿಲ್ಲ — ಆದ್ದರಿಂದ ಇದು ಸ್ಥಿರ ಹಣ; ಅದರೊಂದಿಗೆ ಹೊಸ ತಂತ್ರಜ್ಞಾನ, ಉದ್ಯೋಗ, ರಫ್ತು ಅವಕಾಶಗಳು ಬರುತ್ತವೆ. ಬಹುತೇಕ ಕ್ಷೇತ್ರಗಳಲ್ಲಿ 100 ಶೇಕಡಾವರೆಗೆ ಅನುಮತಿ ಇದೆ, ಕೆಲವಕ್ಕೆ ಮಿತಿ. ಲಾಟರಿ, ಜೂಜು, ಚಿಟ್ ಫಂಡ್, ರಿಯಲ್ ಎಸ್ಟೇಟ್ ವ್ಯವಹಾರ, ಸಿಗರೇಟ್ ತಯಾರಿಕೆ, ಪರಮಾಣು ಶಕ್ತಿ ಇಂಥವುಗಳಲ್ಲಿ ಅನುಮತಿಯೇ ಇಲ್ಲ. 2020ರಿಂದ ನಮ್ಮೊಂದಿಗೆ ಭೂ ಗಡಿ ಹಂಚಿಕೊಂಡ ದೇಶಗಳ ಹೂಡಿಕೆಗೆ ಸರ್ಕಾರಿ ಅನುಮತಿ ಕಡ್ಡಾಯ — ಪಕ್ಕದ ಮನೆಯವರಿಗೆ ಗೇಟಿನ ಕೀಲಿ ಕೊಡುವ ಮುನ್ನ ಯೋಚಿಸುವಂತೆ. (→ English: foreign direct investment · हिन्दी: प्रत्यक्ष विदेशी निवेश)

In exam EnglishWhy does policy court FDI? Because it is the most stable form of foreign capital: a factory cannot be sold off in an afternoon, and it often brings technology, management practice, jobs and access to export markets. The Department for Promotion of Industry and Internal Trade frames FDI policy, and most sectors now allow foreign ownership up to 100 per cent under the automatic route, though some carry caps or need government approval. A few activities are closed to FDI altogether, among them lottery, gambling and betting, chit funds, real estate business, the manufacture of cigars and cigarettes of tobacco, and atomic energy. Press Note 3 of 2020 requires any investment from an entity of a country that shares a land border with India, or whose beneficial owner is situated in or is a citizen of such a country, to come only through the government route.

ವಿದೇಶಿ ಪೋರ್ಟ್‌ಫೋಲಿಯೊ ಹೂಡಿಕೆ ಎಂದರೆ ಕಂಪನಿ ನಡೆಸುವ ಆಸಕ್ತಿ ಇಲ್ಲದೆ ಲಾಭಕ್ಕಾಗಿ ಮಾತ್ರ ಷೇರು, ಬಾಂಡ್ ಕೊಳ್ಳುವುದು — 'ಬಾಡಿಗೆಗೆ ಇರುವುದು' ಇದ್ದಂತೆ. ಇಂಥ ಹೂಡಿಕೆದಾರರು ಸೆಬಿಯಲ್ಲಿ ನೋಂದಾಯಿಸಬೇಕು; ಪ್ರತಿಯೊಬ್ಬರ ಪಾಲು 10 ಶೇಕಡಾಕ್ಕಿಂತ ಕಡಿಮೆ ಇರಬೇಕು, ದಾಟಿದರೆ ಇಳಿಸಬೇಕು ಅಥವಾ ಅದನ್ನು ನೇರ ಹೂಡಿಕೆ ಎಂದು ಪರಿಗಣಿಸಲಾಗುತ್ತದೆ. ಈ ಹಣ ಮಾರುಕಟ್ಟೆಗೆ ಬಲ ಕೊಡುತ್ತದೆ, ಆದರೆ ಹೊರಗೆ ಬಡ್ಡಿದರ ಏರಿದ ಕೂಡಲೇ ಹಾರಿಹೋಗುತ್ತದೆ — ಅದಕ್ಕೇ 'ಹಾಟ್ ಮನಿ'. (→ English: foreign portfolio investment · हिन्दी: विदेशी पोर्टफोलियो निवेश)

In exam Englishforeign portfolio investment is the purchase of shares, bonds and similar securities by non-residents mainly for returns, without seeking control. Foreign portfolio investors must register with SEBI under the SEBI (Foreign Portfolio Investors) Regulations, 2019, and each investor's holding in a listed company must stay below 10 per cent of its equity; if it crosses that line, the investor must either sell down within a short window or have the holding treated as FDI. Portfolio money adds depth to Indian markets and helps finance the current account deficit, but it is quick to leave when global interest rates rise or risk appetite falls, which is why it is often called 'hot money'. The 2013 taper tantrum, described in Part 1, was a portfolio outflow.
FDI and FPI compared
FeatureForeign direct investmentForeign portfolio investment
PurposeLasting interest, a say in managementFinancial return, no control
Listed company threshold10% or more of post-issue paid-up equityBelow 10% per investor
Unlisted companyAny investment counts as FDINot applicable
Who sets the rulesDPIIT policy; FEMA Non-debt Instruments Rules; reported to RBISEBI registration (FPI Regulations, 2019); FEMA rules
StabilityLong-term, hard to withdrawCan leave quickly ('hot money')
Typical exampleA foreign carmaker builds a plant in IndiaA foreign fund buys shares on an Indian exchange

ಇನ್ನೆರಡು ದಾರಿಗಳು ಒಡೆತನವಲ್ಲ, ಸಾಲ ತರುತ್ತವೆ. ಬಾಹ್ಯ ವಾಣಿಜ್ಯ ಸಾಲ — ನಮ್ಮ ಕಂಪನಿ ವಿದೇಶಿ ಬ್ಯಾಂಕಿನಿಂದ ಪಡೆಯುವ ಸಾಲ; ವೆಚ್ಚ, ಅವಧಿ, ಯಾವುದಕ್ಕೆ ಬಳಸಬಹುದು ಎಂಬುದಕ್ಕೆ ರಿಸರ್ವ್ ಬ್ಯಾಂಕ್ ನಿಯಮ ಇಡುತ್ತದೆ. ಅನಿವಾಸಿ ಭಾರತೀಯರ ಠೇವಣಿಗಳು ಮೂರು ಬಗೆ: NRE — ರೂಪಾಯಿಯಲ್ಲಿ, ಪೂರ್ತಿ ಹಿಂದೆ ಒಯ್ಯಬಹುದು; FCNR(B) — ಡಾಲರಿನಲ್ಲೇ ಇರುವುದರಿಂದ ರೂಪಾಯಿ ಕುಸಿದರೂ ಠೇವಣಿದಾರನಿಗೆ ನಷ್ಟವಿಲ್ಲ; NRO — ಇಲ್ಲಿ ಬರುವ ಬಾಡಿಗೆಯಂಥ ಆದಾಯ, ಹೊರಗೆ ಒಯ್ಯಲು ವಾರ್ಷಿಕ ಮಿತಿ. ಒಂದು ವರ್ಷದೊಳಗೆ ತೀರಿಸಬೇಕಾದ ಸಾಲ ಹೆಚ್ಚಾದರೆ ಅಪಾಯ — 1991ರ ಪಾಠ ಅದೇ. (→ English: external commercial borrowing · हिन्दी: बाह्य वाणिज्यिक उधार)

In exam EnglishTwo other channels bring in debt rather than ownership. external commercial borrowing (ECB) is a loan that an eligible Indian company raises from abroad, through bank loans, bonds or similar instruments, under a framework the RBI runs under FEMA, with limits on cost, maturity and end use. Deposits by non-resident Indians come in three main types: NRE accounts, held in rupees and fully repatriable; FCNR(B) accounts, held in foreign currency, so the bank rather than the depositor bears the exchange risk; and NRO accounts, which hold income earned in India and can be repatriated only up to a yearly ceiling. Together with trade credit and official loans, these make up India's external debt, which the Ministry of Finance and the RBI report regularly. Analysts watch the debt's size relative to GDP and, above all, the share falling due within a year, because short-term debt is what turned the 1991 squeeze into a crisis.

ಈಗ ಎಲ್ಲವೂ ಜೋಡಿಸಿಕೊಳ್ಳುತ್ತವೆ: ಪಾವತಿ ಶೇಷದಲ್ಲಿ ಬರೆದ ವ್ಯವಹಾರಗಳೇ ಮಾರುಕಟ್ಟೆಯಲ್ಲಿ ಡಾಲರಿನ ಬೆಲೆಯನ್ನು — ವಿನಿಮಯ ದರವನ್ನು — ನಿರ್ಧರಿಸುತ್ತವೆ; ರಿಸರ್ವ್ ಬ್ಯಾಂಕ್ ಮೀಸಲಿನಿಂದ ಅಲುಗಾಟಗಳನ್ನು ಮೆದುಗೊಳಿಸುತ್ತದೆ. ವಿದೇಶಿ ಹಣವನ್ನು ಸ್ಥಿರತೆ ನೋಡಿ ಅಳೆಯುತ್ತಾರೆ: ಕಾರ್ಖಾನೆ ಕಟ್ಟುವ ಹಣಕ್ಕೆ ಸ್ವಾಗತ, ಷೇರು ಹಣಕ್ಕೆ ಮಿತಿ, ಅಲ್ಪಾವಧಿ ಸಾಲಕ್ಕೆ ಬಿಗಿ ಕಡಿವಾಣ. 1991 ಮತ್ತು 2013ರ ಪಾಠಗಳು ಎಲ್ಲದರಲ್ಲೂ ಕಾಣುತ್ತವೆ. (→ English: exchange rate · हिन्दी: विनिमय दर)

In exam EnglishThe pieces now fit together. Flows recorded in the balance of payments meet in the foreign exchange market, where they set the exchange rate; India lets that rate float but the RBI leans against sharp swings, using reserves that are built up when inflows are strong. Effective exchange rates, especially the REER, show whether the rupee's level is helping or hurting competitiveness. On the capital side, policy ranks foreign money by stability: FDI is welcomed and mostly automatic, portfolio flows are welcome but capped and watched, and debt, especially short-term debt, is kept on a tighter leash. The lessons of 1991 and 2013 run through all of it. The institutions that shape these flows from outside India, the IMF, the World Bank and the WTO, are the subject of the next chapter.

Exam traps

Recap

Practice questions

Q1. In a market-determined system, if the exchange rate moves from ₹84 to ₹87 per US dollar, the rupee has:

  1. appreciated
  2. depreciated
  3. been devalued
  4. been revalued
Show answer

Answer: B. depreciated

More rupees are now needed for one dollar, so the rupee has lost value through the market: a depreciation. 'Appreciated' is the opposite movement, and devaluation and revaluation are official decisions under a fixed or pegged system, not market changes, so the other options are wrong.

Q2. Consider the following statements about a depreciation of the rupee:
1. It tends to make Indian exports cheaper for foreign buyers.
2. It reduces the rupee cost of repaying loans taken in US dollars.
Which of the statements given above is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
Show answer

Answer: A. 1 only

Statement 1 is correct: each dollar now buys more rupees' worth of Indian goods. Statement 2 is wrong: after depreciation more rupees are needed to buy each dollar of repayment, so the rupee cost of dollar debt rises. Hence '2 only', 'Both' and 'Neither' are wrong.

Q3. Consider the following pairs (step in India's exchange rate policy : time):
1. Rupee linked to a basket of currencies : September 1975
2. Liberalised Exchange Rate Management System (dual rate) : March 1992
3. Unification into a single market-determined rate : March 1993
How many of the pairs given above are correctly matched?

  1. Only one
  2. Only two
  3. All three
  4. None
Show answer

Answer: C. All three

All three pairs are correct: the basket peg began in September 1975, LERMS with its 60:40 dual rate in March 1992, and the rates were unified in March 1993. So 'only one', 'only two' and 'none' are wrong.

Q4. Consider the following statements:
1. The nominal effective exchange rate of the rupee is calculated against the US dollar alone.
2. The real effective exchange rate adjusts the nominal effective exchange rate for differences in inflation between India and its trading partners.
Which of the statements given above is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
Show answer

Answer: B. 2 only

Statement 1 is wrong: the NEER is a trade-weighted average against a basket of currencies (the RBI uses 6 and 40 currencies), not the dollar alone. Statement 2 is correct. So '1 only', 'Both' and 'Neither' are wrong.

Q5. Which one of the following is NOT a component of India's foreign exchange reserves?

  1. Foreign currency assets
  2. Gold
  3. Special Drawing Rights
  4. Deposits of non-resident Indians in Indian banks
Show answer

Answer: D. Deposits of non-resident Indians in Indian banks

The reserves held by the RBI consist of foreign currency assets, gold, SDRs and the reserve tranche position in the IMF, so the first three options are components. NRI deposits are liabilities of Indian banks to non-residents and a capital inflow, not reserve assets, so they are the correct answer.

Q6. Consider the following statements:
1. Under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, an investment by a person resident outside India of 10 per cent or more of the post-issue paid-up equity capital of a listed Indian company is treated as foreign direct investment.
2. FDI under the automatic route requires prior approval of the Reserve Bank of India.
Which of the statements given above is/are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
Show answer

Answer: A. 1 only

Statement 1 is correct and reflects the 10 per cent line recommended by the Mayaram committee. Statement 2 is wrong: the automatic route needs no prior approval from the RBI or the government; the investment is only reported afterwards. So '2 only', 'Both' and 'Neither' are wrong.

Q7. The 'impossible trinity' in international economics states that a country cannot simultaneously have:

  1. a fixed exchange rate, free capital movement and an independent monetary policy
  2. low inflation, high growth and a fiscal surplus
  3. a current account deficit, a capital account surplus and rising reserves
  4. free trade, a floating exchange rate and an independent monetary policy
Show answer

Answer: A. a fixed exchange rate, free capital movement and an independent monetary policy

The trilemma concerns a fixed exchange rate, open capital flows and independent monetary policy: only two can be kept at once. Low inflation with growth and a surplus is a policy goal, not the trinity; a current account deficit with larger capital inflows and rising reserves is India's usual pattern and is perfectly possible; and a floating rate is what allows independent monetary policy, so the other options are wrong.

Q8. Consider the following pairs (deposit scheme for non-resident Indians : feature):
1. NRE account : held in rupees and fully repatriable
2. FCNR(B) account : held in foreign currency
3. NRO account : freely repatriable without any limit
How many of the pairs given above are correctly matched?

  1. Only one
  2. Only two
  3. All three
  4. None
Show answer

Answer: B. Only two

Pairs 1 and 2 are correct. Pair 3 is wrong: NRO accounts hold income earned in India and can be repatriated only up to a yearly ceiling. So 'only one', 'all three' and 'none' are wrong.

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