Indians are travelling abroad like never before, with the number of tourists expected to climb to 50 million by 2020. While the travel industry has kept pace with innovations like online-booking and e-tickets, an essential component of foreign travel which is forex is still governed by archaic laws framed in 1999 to regulate the sale & purchase of foreign currency notes in past times of scarcity. These need to be amended to simplify the process, improve convenience, and eliminate the black-market.
UNDUE REGULATIONS: When India, in line with the strength of our currency, should be heading for full-convertibility, an Indian traveller can take only a miniscule US$ 10K equivalent forex per calendar year. Plastic money is still termed as a ‘new technology’ even now in the relevant RBI forex regulation guidelines, and limits its wider adoption.
More importantly, licensing and operating norms for authorised forex agents is unduly complex, and sometimes it is just simpler to operate without a licence and deal in cash. And while the stated objective of the Reserve Bank is to eliminate unrecorded transactions in forex, to eliminate Money-laundering and other evils, all these limitations are actually serving to drive forex into the ‘grey-market’.
MARKET REALITIES: To become an authorised forex agent, one needs to be licensed in each state, and for each branch location. Additionally, for selling forex, an ‘in-person’ KYC still needs to be done for each transaction, even though an account-to-account payment may have been received (therefore KYC effectively having already been done by the clients bank, and the transaction being traceable).
To circumvent these burdensome regulations, most forex dealers just sell currency notes, and since they are not licensed, just accept payment in cash – driving the entire industry underground (by some estimates, in excess of 70% of the forex market functions in the grey area). This then leads to more problems like extensive circulation of counterfeit notes, easy terrorist financing, etc.
A NEW THINKING REQUIRED: Firstly, let curbs on foreign currency for personal use be lifted (Travel, studies, investment, medical, employment, etc.). This constitutes only a very small percentage of the overall forex demand, and any amount for this purpose will not impact our reserves which are now over $300 Billion!
Secondly, at immigration, let it be mandatory to declare the amount of forex being taken for a travel, and provide a receipt for the same. This used to be required, but is no longer so. It can then be regulated that only account payment must be made for all forex purchases. And that any amount without a corresponding bill will be summarily confiscated. This will eliminate cash payments, and will therefore remove the rationale to purchase currency. Travellers will then be encouraged to move to electronic money like the prepaid forex card – unaccounted forex must be treated on par with drugs, as it is more deadly to a country’s economy and safety!
And finally, it will positively help if just like the simplified payment banks license, a simplified forex license can be granted, taking into account the requirements of emerging business models like online, and encouraging promotion of ‘plastic forex’. This will prompt all prospective forex agents to register, as otherwise they cannot accept payments, and will not get customers.
This simplified operation is our wish-list for the Finance Minister in the upcoming budget!