View from Delhi: Easing of forex curbs will affect NRIs eventually

Indians will soon be able to purchase shares of Microsoft and General Motors, going by the pace at which the central bank is busy relaxing foreign exchange regulations.

Last week, it allowed resident Indians to maintain foreign accounts, something un-heard of until foreign exchange reserves started climbing. The balances in foreign bank accounts can be used for travel, medical treatment abroad, education, gifts and other items, even through Internet. The reserves are increasing by almost $10 billion a year and now stand at $65 billion. At the rate they are rising, they will cross $100 billion in three to four years.

It is now only a matter of time before the rupee is made fully convertible, may be by 2005 or so. It will then be possible for resident Indians to buy not only shares of foreign companies but also real estate abroad. It also means that non-resident Indians will be able to buy assets in India without having to go through the central bank.

In fact, most people think that NRIs will soon be on par with residents in most respects. This cuts both ways. NRIs may have to pay local taxes too, including income tax, on the same basis as residents. Some income-tax experts in the government have suggested that non-residents who stay in India for more than 182 days should not only be taxed on their income generated in India, but also on their global income.

However, as the law now stands, income earned abroad by such non-residents is exempt from tax. If this clause is deleted, persons who return to India after two years, say from Dubai, and stay in India for over 182 days will have to pay tax on their world income, not just Indian income, even though they may be ordinarily non-residents. Perhaps their assets outside India will also become taxable.

These are some of the recommendations of a committee headed by Vijay Kelkar, a finance ministry official. He wants the entire tax system to be overhauled, including doing away with current tax exemptions. In return, tax levels will be lowered and the system will be simplified.

Meanwhile, the disinvestment process has come to what appears to be a complete halt. When representatives of some companies who are bidding for Nalco, a profitable aluminium company, went to Orissa for inspection, they had to return empty-handed as the workers did not allow them to enter the plant. Even the Orissa government is against privatisation of Nalco and is supporting the workers.

Nalco was expected to be a big prize in privatisation stakes, and a number of international bidders including Alcoa of the U.S. and Alcan of Canada had their eyes on it. Now they will have to wait until further developments.

How was Diwali this year? Not too bright, but not too noisy either, as authorities do not look kindly on crackers nowadays. But there was a big rush at jewellery shops which did roaring business though many didn't expect to do so well. Sales were up by 30 per cent on last year, with customers going in, for the first time, for the so-called hall-marked jewellery, that is, government-certified jewellery.

Gold imports are also running very high, at 14,000 ten-tola bars a day, against 11,000 at this time last year. And since it was Diwali, the tax inspectors looked the other way and did not ask too many questions.