{"id":48740,"date":"2025-05-23T13:59:06","date_gmt":"2025-05-23T13:59:06","guid":{"rendered":"https:\/\/my.legal500.com\/developments\/?post_type=legal_developments&p=48740"},"modified":"2025-05-23T14:22:36","modified_gmt":"2025-05-23T14:22:36","slug":"fema-update-amendments-to-fema-regulations-promoting-increased-inr-usage","status":"publish","type":"legal_developments","link":"https:\/\/my.legal500.com\/developments\/thought-leadership\/fema-update-amendments-to-fema-regulations-promoting-increased-inr-usage\/","title":{"rendered":"FEMA UPDATE | AMENDMENTS TO FEMA REGULATIONS PROMOTING INCREASED INR USAGE"},"content":{"rendered":"
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  1. Background <\/strong><\/li>\n<\/ol>\n

    The Reserve Bank of India (RBI), through a press release <\/u>dated 16 January 2025,\u00a0 introduced amendments to several regulations made under the Foreign Exchange\u00a0 Management Act 1999 (FEMA). These amendments aim to enhance the use of the\u00a0 Indian Rupee (INR) in cross-border transactions. This initiative is a significant step\u00a0 towards reducing dependency on foreign currencies and increasing the global\u00a0 acceptability of INR for trade and investment purposes.<\/strong><\/p>\n

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    1. Amendments Brought In <\/strong><\/li>\n<\/ol>\n

      The key changes introduced by the amendments include:<\/p>\n

      2.1. Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt <\/u>\u00a0Instruments) Regulations 2019: <\/u>Foreign investors can now use repatriable rupee\u00a0 accounts or foreign currency accounts for transactions, instead of earlier modes such\u00a0 as NRE, NRO, FCNR(B), or escrow accounts<\/u>. This applies to transactions including the\u00a0 purchase\/sale of equity instruments of Indian companies, investment\/disinvestment\u00a0 in LLPs, purchase\/sale of units of investment vehicles, and purchase\/sale of convertible\u00a0 notes of startups.<\/p>\n

      2.2. Foreign Exchange Management (Deposit) Regulations, 2016: <\/u>The amendments allow a\u00a0 Person Resident Outside India (PROI<\/strong>) to open a Special Non-Resident Rupee (SNRR<\/strong>)\u00a0 account with an Authorized Dealer (AD<\/strong>) Bank\u2019s branch outside India, in addition to\u00a0 domestic branches. The restriction on the maximum tenure of SNRR accounts\u00a0 (previously capped at 7 years) has also been removed. Additionally, SNRR accounts\u00a0 may now be used for all permissible current and capital account transactions, including\u00a0 transactions among PROIs.<\/p>\n

      2.3. Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in <\/u>\u00a0India) Regulations, 2015: <\/u>Indian exporters are now permitted to open and maintain\u00a0 foreign currency accounts with overseas banks for receiving full export value and\u00a0 advance payments, which may be used for imports into India or must be repatriated\u00a0 by the end of the next month.<\/p>\n

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      1. Brief Overview of the Effects of the Amendments <\/strong><\/li>\n<\/ol>\n

        The amendments streamline foreign investment processes and promote ease of doing\u00a0 business by:<\/p>\n

        3.1. Expanding the flexibility of currency options for foreign investors.<\/p>\n

        3.2. Enhancing cross-border trade settlements in INR by enabling transactions through Special Rupee Vostro Accounts (SRVA) and SNRR accounts.<\/p>\n

        3.3. Strengthening India\u2019s position in global financial markets by facilitating seamless INR transactions.<\/p>\n

        3.4. Providing exporters with greater autonomy in managing their foreign earnings, improving liquidity and operational efficiency.<\/p>\n

        3.5. Enabling units in International Financial Services Centres (IFSCs<\/strong>) to open SNRR\u00a0 accounts with AD banks in India for business-related transactions, thereby bolstering India’s financial infrastructure.<\/p>\n

        MHCO Comment: <\/strong><\/p>\n

        These amendments represent a progressive step towards internationalizing the INR. By\u00a0 allowing broader use of INR in foreign transactions, India reduces reliance on hard currencies\u00a0 like the USD and EUR, mitigating exchange rate risks. Moreover, the regulatory simplifications\u00a0 make it easier for foreign investors to engage with Indian markets. However, the success of\u00a0 these changes will depend on global acceptance of INR and reciprocal arrangements with\u00a0 foreign trade partners. The removal of the SNRR account tenure cap and the expanded scope\u00a0 for transactions could improve liquidity and promote investment. However, further\u00a0 refinements may be needed to address practical challenges, such as liquidity management,\u00a0 foreign investor confidence in INR settlements, and compliance with global financial norms.<\/p>\n

        The amendments to FEMA regulations reflect India\u2019s commitment to enhancing the global\u00a0 utility of INR and facilitating foreign investments. While this is a significant milestone,\u00a0 continued efforts are necessary to build confidence and establish INR as a preferred currency\u00a0 for international trade and investment. The long-term success of these measures will depend on sustained policy support, market confidence, and international collaboration.<\/p>\n

        Authored By: Mr Bhushan Shah, Partner,\u00a0 Ms Shreya Dalal, Associate Partner and Ms Veena Hari, Associate.<\/em><\/p>\n

        This article was released on 7 February 2025. <\/em><\/p>\n

        The views expressed in this update are personal and should not be construed as any legal\u00a0 advice. Please contact us for any assistance.<\/em><\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-48740","legal_developments","type-legal_developments","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments\/48740","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/legal_developments"}],"about":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/types\/legal_developments"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/media?parent=48740"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}