RBI Proposes Key Reforms To Improve Ease Of Doing Business And Streamline Forex

The Reserve Bank of India (RBI) on Wednesday announced its latest monetary policy decisions, retaining the policy repo rate at 5.50 per cent while maintaining a neutral stance. The decision follows a three-day meeting of the Monetary Policy Committee (MPC) held from 29th September to 1st October, amid a dynamic domestic and global economic environment.

In a significant move to simplify regulatory compliance and support business operations, the RBI announced seven major measures aimed at enhancing the ease of doing business.

First, the central bank has consolidated approximately 9,000 circulars and directions issued to 11 types of regulated entities. Drafts of these consolidated guidelines will be released shortly for public consultation, providing clarity and reducing compliance burden.

Second, greater flexibility will be provided to banks in opening and maintaining transaction accounts for borrowers, including current accounts and cash credit/overdraft (CC/OD) accounts. Restrictions related to collection accounts are also proposed to be removed, particularly benefiting borrowers regulated by financial sector authorities.

Boosting Export Sector Operations

To strengthen the export sector and streamline forex operations, the RBI has introduced several targeted measures:

The repatriation period for funds in foreign currency accounts of Indian exporters operating in International Financial Services Centres (IFSCs) has been extended from one month to three months.

The permissible period for foreign exchange outlay under Merchanting Trade transactions will increase from four months to six months.

Processes for reconciling outstanding entries related to exports and imports in the Electronic Data Processing & Monitoring System (EDPMS) and Import Data Processing & Monitoring System (IDPMS) will be simplified.

These measures are expected to improve liquidity management, ease operational procedures for exporters, and enhance India’s competitiveness in global trade.

Simplifying Foreign Exchange Management

The RBI also proposed rationalisation of key provisions under the Foreign Exchange Management Act (FEMA).

External Commercial Borrowing (ECB) regulations will be streamlined, covering aspects such as eligible borrowers, recognised lenders, borrowing limits, cost of borrowing, end-use, and reporting requirements.

FEMA regulations governing non-residents establishing business presence in India will also be rationalised, aimed at facilitating smoother market entry and operations.

These initiatives underscore the central bank’s commitment to balancing regulatory oversight with business-friendly reforms, particularly in a volatile global financial environment.

Stable Rates Amid Benign Inflation

The MPC’s unanimous vote to keep the repo rate unchanged comes after a detailed assessment of India’s growth-inflation dynamics. The committee observed that headline inflation has moderated sharply in recent months, aided by a significant decline in food prices and the rationalisation of Goods and Services Tax (GST) rates.

Average headline inflation for FY2025-26 has been revised down from 3.7 per cent in June and 3.1 per cent in August to 2.6 per cent. Headline inflation for Q4FY26 and Q1FY27 has also been revised downwards and remains broadly aligned with the RBI’s target, despite unfavourable base effects. Core inflation is expected to remain contained for the current fiscal year and into the first quarter of 2026-27.

The RBI highlighted that India’s economy remains resilient, with strong Q1 growth in FY2025-26 supported by robust private consumption and fixed investment. A good monsoon and GST rationalisation are expected to sustain growth while moderating inflation, although trade tariffs may weigh on exports.

Global Context and Policy Outlook

Globally, the economy has been more resilient than expected, with strong growth in the US and China. However, elevated policy uncertainty, inflation above targets in several advanced economies, and financial market volatility continue to pose challenges. The US dollar has strengthened following upward revisions to US growth data, while treasury yields have hardened as expectations of Federal Reserve rate cuts eased.

Against this backdrop, the RBI has emphasised a cautious approach, waiting for the transmission of previous policy measures before deciding on further steps. The central bank’s actions aim to support sustained growth while keeping inflation within manageable limits.