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Indian Economy

Notes Reliance also contended that they invested the ECB proceeds in debt mutual fund schemes
to ensure immediate availability of funds for utilisation in India.
“I do not find any merit in this contention also as the applicant has not approached RBI
either for utilising the proceeds not provided for in the ECB guidelines, or its repatriation
abroad for investment in the capital of the JV,” the RBI official said in the order.

In its defence, the company said the exchange rate gain on account of remittance on March
5 2008, would be a notional interim rate gain as such exchange rate gain is not crystallised.
But RBI did not think so. It was further also stated that in terms of Accounting Standard 11
(AS 11), all foreign exchange loans have to be restated and the difference between current
exchange rate and the rate at which the same were remitted to India, has to be shown as
foreign exchange loss/gain in profit and loss accounts.
“However, in a scenario where the proceeds of the ECB are parked overseas, the exchange
rate gains or losses are neutralised as the gains or losses restating of the liability side are
offset with corresponding exchange losses or gains in the asset. In this case, the exchange
gain had indeed been realised and that too, the additional exchange gain had accrued to
the company through an unlawful act under FEMA,” the order said.
It said as the company has made additional income of ` 124 crore, it is liable to pay a fine
of ` 124.68 crore. On August 2008, the company submitted another fresh application for
compounding and requested for withdrawal of the present application dated April 17,
2008, to include contravention committed in respect of an another transaction of ECB
worth $150 million. But RBI said the company will have to make separate application for
every transaction and two transactions are different and independent and cannot be clubbed
together.

Questions
1. Discuss how Reliance has violated the FEMA regulations?
2. Critically evaluate the case and discuss what Reliance should have done in the
above situation.
Source: Dr Mittal, Vivek. Business Environment. Excel Books Publications, New Delhi.

3.3 Summary

The basic aim of economic planning in India is to bring about rapid economic growth
through development of agriculture, industry, power, transport and communications,
and all other sectors of the economy.
The basic measure of economic growth of a country is the continuous expansion, year after
year, of real national income and real per capita income.
Economic growth should also include improvements in quality of life consisting of life
expectancy, infant mortality, literacy, etc.

Unemployment and under-employment are important causes of poverty in India.
Hence, from the very beginning, removal of unemployment and underemployment has
been an important objective of economic planning in the country.

The Planning Commission has all along assumed that increase in investment would be
accompanied by increase in employment as well as increase in national income of the
country.

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