Foreign Regulation in India

When trade takes place between the residents of two countries, the two countries being a sovereign state have their own set of regulations and currency. Due to this, problem arises in the conduct of international trade and settlement of the transactions .While the exporter would like to get the payment in the currency of its own country, the importer can pay only in the currency of the importers country. This creates a need for the conversion of the currency of importer’s into that of the exporter’s country. Foreign exchange is the mechanism by which the currency of one country is gets converted into the currency of another country. The conversion is done by banks who deal in foreign exchange.

History of Money:

In recent times, people used to trade with bartering which means the exchange of a good or service for another good or service, a bag of rice for a bag of beans. When Barter system start creating problems, the commodity money system lessen the problem of trade.

Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money. Commodity money still had some problems like, currency was not unified and the quality of currency varied. Some used high-quality grains for currency, which would be a rare occasion. Majority used low-quality commodities, since it has equal amount of purchasing power compared to the same amount of high-quality commodities. This system didn’t solve the problem of trade because of non-standardization. This leads to the development of coinage system which includes metals like copper, silver, and gold. This system solved the problem of trade and gives some standard also. After this era, the most dramatic evolution came in the history of money which was starting of paper currency which was originated representative currency and fiat money. Representative money refers to money that consists of a token or certificate made of paper (legal tender). The use of the various types of money including representative money, tracks the course of money from the past to the present. Gold certificates or Silver certificates are a type of representative money which was used in the United States as currency until 1933. Fiat money refers to money that is not backed by reserves of another commodity. The money itself is given value by government fiat or decree, enforcing legal tender laws, previously known as "forced tender", whereby debtors are legally relieved of the debt if they pay it off in the government's money.

International trade requires an international standard to solve the problem of trade. Before gold standard, it faced many difficulties in trade between two countries. The evolution of gold standard gives a huge boost.

Forex management in India

Forex management is one of the complex procedures to follow on by regulators around the world. The country like India where trade deficit has been the regular reflection of overseas trade and balance of payment is at negative side, the management of forex became challenging. Historically trading history started from batter system to punch mark coins and now at currency system. The central government in India has wide powers to control transactions in foreign exchange. Until 1992 all foreign investments in India and the repatriation of foreign capital required prior approval of the government. The Foreign-Exchange Regulation Act, which governs foreign investment, rarely allowed foreign majority holdings. However, a new foreign investment policy announced in July 1991 prescribed automatic approval for foreign investments in thirty-four industries designated high priority, up to an equity limit of 51 percent. Initially the government required that a company's automatic approval must rely on matching exports and dividend repatriation, but in May 1992 this requirement was lifted, except for low-priority sectors. In 1994 foreign and nonresident Indian investors were allowed to repatriate not only their profits but also their capital. Indian exporters are also free to use their export earnings as they see fit. However, transfer of capital abroad by Indian nationals is only permitted in special circumstances, such as emigration. Foreign exchange in India is automatically made available for imports for which import licenses are issue.

The main constrain in India’s rapid growth is the infrastructure bottleneck and lack of capital formation in the country. India has been the rider of Hindu growth rate since 1947,the trigger came after four decade after independence when country get the real freedom to grow with the legs of liberalization ,privatization and globalization opted by Rao Manmohan duo in early nineties. The new policy allowed the foreign direct investment, advent of new technology, public private participation backed by IT revolution in the country. The change of policy paid well in the form of improvement in Micro and Macro economic indicator like GDP growth, employment generation, infrastructure development, export and import growth, forex reserve, country rating, business confidence, governance, etc.

Chalange for India in Forex management

India is an emerging economic hub; Indian trade to world has gone up significantly post WTO, after the BOP crisis in nineties India has managed their foreign exchange quite well. We are going to explore the practices which were opted in the past and the change that government is planning to do in future. And the practices which is opted by the global players to manage their foreign exchange reserve.

Till now, India is using most of their reserve for their BOP requirements we are more concern with liquidity and safety of the Forex reserve. We will explore the opportunity for the use of the Forex reserve for the development of infrastructure project in our country. Infrastructure in

India has been the core problem and great hindrance of our growth .In spite of huge expenditures in the infrastructure by the government country is still having inadequate facilities and blame has been given to the lack of fund with government, at the same time billions of dollar of Forex reserve are kept idle with the government .If part of the reserve will be planted in the infrastructure project it will help to fix the problem, once infrastructure issue will be solved the FDI inflow will increase and it will further increase the Forex reserve in longer period and help in prosperity of the nation.

Diversification by adding more currencies and their proportion in our foreign exchange reserve basket to adjust our reserve with our requirements, because world economy order is dynamic and it has changed a lot after the advent of European Union and their common currency, emergence of Euro zone and better performance of emerging market is also forcing to adopt the changes. Record fall in dollar index also propel the idea of balancing the Forex basket for the countries. World has become the global village and divided into several trade blocks which have their own dynamics, to adjust with these dynamics in changing equation country has to rebalance their policy regarding the Forex management for their sustainable growth in future.

Promoter Holding 75.07% in State Bank of Bikaner & Jaipur

Mumbai, Apr,14: As per the information submitted by the State Bank of Bikaner & Jaipur to stock exchange regarding the share holding pattern of the bank quarter ended December 31, 2010 (Q3) the holding of Foreign Institutional Investor seen down to 1.11 percent from the previous quarter holding of 2.95.The promoter holding increased to 75.07 from 75.00 in previous quarter. Domestic Institutions holding has increased to 4.20 per cent in the Q3 from 2.56 in Q2. However, the other segment including retail shareholding in the share has increased to 19.62 per cent from 19.49 which were reported in Q2. The Bank has reported revenue growth of Rs 12,262.20 million net profit of Rs 1,324.50 million, Earning per Share (EPS) Rs 26.49 and Net Profit Margin percent 10.80 reported in quarter ending December 2010.

Karur Vysya Bank Ltd having 3.51% Promoter Holding

Mumbai, Apr,14: As per the information submitted by the Karur Vysya Bank Ltd to stock exchange regarding the share holding pattern of the bank quarter ended December 31, 2010 (Q3) the holding of Foreign Institutional Investor seen down to 21.43 percent from the previous quarter holding of 21.79.The promoter holding reduced to 3.51 from 3.53 in previous quarter. Domestic Institutions holding has increased to 4.24 per cent in the Q3 from 3.92 in Q2. However, the other segment including retail shareholding in the share has increased to 70.78 per cent from 70.76 which were reported in Q2. The Bank has reported revenue growth of Rs 5,754.90 million net profit of Rs 1,132.20 million, Earning per Share (EPS) Rs 14.86 and Net Profit Margin percent 16.67 reported in quarter ending December 2010.

CRISIL leading Rating Company expects higher interest rates

CRISIL leading Rating Company expects higher interest rates and commodity prices to slow down investment-driven demand in the country, with rising rates moderating retail demand, it said in a statement on Wednesday.

Indian companies' credit quality is peaking and profitability of players in the cement, chemicals, construction, automobile and textile spinning industries may be affected by high input prices, CRISIL said that the External factors, such as surging oil prices due to unrest in West Asia and North Africa and interruption in trade and investments, can have a "large impact on corporate credit quality.CRISIL has modified credit ratio (MCR), an indicator of the relative frequency of upgrades and downgrades, rose for the second year, after plummeting to a decade low in FY09.

However, an improvement in the MCR is likely to be limited, going forward, on higher pressure on profitability and intensifying competition, it said.Increased profitability pressures are expected to continue over the medium-term, it said