Explained: Why has the govt eased norms for Indians to receive more money from relatives abroad, but hiked import duty on gold?

The Ministry of Home Affairs made amendments to certain provisions of the Foreign Contribution (Regulation) Act (FCRA) on Saturday, allowing Indians to receive up to Rs 10 lakh annually from their relatives abroad. Previously, the limit was Rs 1 lakh per annum without notifying authorities. This move follows the government’s decision to increase the import duty on gold from 7.5 percent to 12.5 percent, aimed at discouraging gold imports that contribute to a trade deficit increase and currency and forex reserve pressure.

These consecutive measures aim to control fund outflows and boost inward remittances. Experts suggest that raising the remittance limit from Rs 1 lakh to Rs 10 lakh will likely lead to increased fund inflow into India, stabilizing forex reserves and the currency.

Similarly, the increase in gold import duty from 7.5 percent to 12.5 percent is expected to discourage gold imports by raising gold prices in India. This, in turn, should contribute to stabilizing the currency, forex reserves, and reducing the trade deficit, which witnessed a significant widening in April and May 2022.

Concerns arise from the trade deficit figures, reaching $20.1 billion and $24.6 billion in April and May 2022, respectively, totaling $44.7 billion in two months. In comparison, the trade deficit for the same months in 2021 was $21.8 billion. Factors such as petroleum and substantial gold imports, which amounted to $6 billion in May 2022 compared to $670 million in May last year, contribute to this widening deficit. Experts emphasize that an increased import duty on gold could elevate import costs, discouraging its consumption.

While India’s forex reserves remain substantial, standing at $642 billion in October 2021 and decreasing to $593 billion by June 24, 2022, concerns linger over this decline. In the past eight months, there has been an approximately $50 billion reduction in forex reserves. Experts note a simultaneous decline of almost $20 billion in the forward market. This cumulative reduction of $70 billion raises significant concerns, prompting calls for government action to stem fund outflows, boost inflows, and stabilize both forex reserves and the currency.