India’s forex reserves set to top $600 billion

Question: Foreign exchange reserves of India have been hovering below the $600 billion mark. Will the year 2024 result in breaching this mark?

ANSWER: There is every possibility that the foreign exchange reserves of India will reach a figure higher than $600 billion this year. Foreign direct investment is likely to flow in to the maximum level that India has ever seen in view of several foreign projects being set up in the manufacturing space. Foreign portfolio investments are also likely to be at an all-time high as the capital market may show an upward swing after the general elections. Crucially, remittances from Indians working abroad are expected to rise substantially. The World Bank, in its latest development report, has indicated that the overseas remittances to India will be around $135 billion in 2024.

According to the report, the key drivers of remittance growth will be the strong base of skilled and unskilled Indian employees in the United States, United Kingdom, Gulf nations and East Asian countries. The high employment growth of Indians in the US and Europe is on account of leveraging of worker retention programmes. At present, the US has been the biggest source of remittances into India. Among the GCC countries, remittance flows to India have been the highest from the UAE. Inward remittances have got a tremendous boost after the agreement which India signed with the UAE in February 2023 for setting up a framework to promote the use of the Dirham for cross border transactions.

Question: While India is progressing fast both in terms of its infrastructure development and a larger industrial base, the level of poverty of the weaker sections of society is only marginally improving. Is the government taking steps to improve the lot of the impoverished?

ANSWER: The most important need of the poor, mainly nourishment, is sought to be tackled by the government extending the free food grains scheme by a further period of five years upto December 2028. The scheme entails provision of 35kg of grains every month to each family covered by the scheme. For the calendar year 2023, the cost of executing the scheme has been Rs2 trillion. Hereafter, this figure will increase in every calendar year as a result of the minimum support price to farmers going up. Prior to this free food grains scheme, wheat was sold at Rs2 a kilo and rice at Rs3 a kilo. Thereafter it was decided by the government to give the food grains totally free, which will now continue upto the end of 2028. Further, a One Nation One Ration Card scheme has also been announced so that the beneficiaries of the scheme can avail of it anywhere in India where they may reside or work. Schemes for provision of free education and healthcare are also implemented.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.

Question: My friends in India tell me that sovereign gold bonds are a good form of investment. I need some information on these bonds which would help me to take an informed decision for my mother.

ANSWER: These bonds are on tap for a limited period of time. The latest tranche of the sovereign gold bonds 2023-24 Series III opened for subscription last month, from December 18 to 22. Since the subscription has now closed, the bonds can only be purchased from the secondary market. The bond has a maturity period of eight years. However, investors have the option to exit the scheme after the fifth year on the date when the interest is paid. The annual interest of 2.5 per cent is liable to tax. Therefore, depending upon your mother’s other income in India; the appropriate rate of tax would apply on the interest amount. If she buys the bonds in the secondary market and retains them until they mature in the eighth year, the capital gains are exempt from tax. However, if she sells the bonds before the maturity date after purchasing them in the secondary market, capital gains tax would be chargeable. If the bonds have been retained for less than three years, the capital gains would be treated as short term and the full amount of such gains would be taxable. On the other hand, if the bonds have been retained for three years or more, she will be entitled to index the cost and the capital gains so arrived at would be taxed at the rate of 20 per cent. The advantage of acquiring these bonds is that the investor gets in electronic form high purity gold which is a hedge against inflation.

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