With a view to provide importers with greater flexibility in hedging facility, the Reserve Bank of India (RBI) has decided to allow domestic importers to book forward contracts up to 50 percent of the eligible limit under the past performance route. As per the present guidelines relating to hedging of currency risk of probable exposures based on past performance, Indian importers are allowed to book contracts up to 25 percent of the eligible limit.
The RBI further notified that importers who have already booked contracts up to previous limit of 25 percent in the current financial year, will be eligible for difference arising out of the enhanced limits. The eligible limit is determined on the basis of average of the previous three financial years' import turnover or the previous year's actual import turnover, whichever is higher.
The RBI’s latest move is likely to provide some relief to importers as the depreciation in rupee value increases the imports costs. During the FY14, India’s overall imports declined by 8.11% to $450.95 billion as against $490.74 billion reported in the same period of previous fiscal year. Contraction in domestic imports during FY14 was mainly driven by weak domestic demand and lower gold imports.