Only authorized dealers can buy and sell foreign currency in India. Bank notes euros image by Warren Millar from Fotolia.com The Reserve Bank of India (RBI), which is the central bank, maintains authority over all foreign currency businesses in India. It issues licenses to Fully Fledged Money Changers (FFMC) and Restricted Money Changers (RMC) to conduct foreign currency exchange business. Individuals or businesses seeking to purchase or sell foreign currency can do so only through licensed dealers under India's Foreign Exchange Management Act 1999 (FEMA).
The Law
The Foreign Exchange Management Act 1999 renders it illegal for any person to sell or buy currency from an unauthorized dealer. For example, if you landed in Mumbai today, and you find private citizens who want to purchase your dollars at a higher exchange rate than the official one, you are contravening the law. You can conduct such transactions only at an authorized bureau de change (exchange bureau). Conversely, making any payments to a person or a company outside of India requires prior authorization from the RBI. The law also makes it illegal for a nonauthorized agent in India to purchase property or assets outside of the country.
Foreign Currency Investments
By law, the RBI has the power to regulate, restrict or even prohibit owning or transferring securities, or foreign currency, by a person resident in India. A person resident in India includes a foreigner who has lived in the country continuously for at least 182 days. A foreigner and an Indian returning home after a period of residency abroad is allowed to hold, own or invest in Indian currency, securities or property if, at the time of acquisition, he has lived in India for that length of time. If you are involved in an export business, you need to inform the Reserve Bank of the exact value of the merchandise traded ahead of time.
Punishment
Visitors may be tempted to want to change money on the street because the rate may be higher than the one offered by authorized dealers or banks, but the penalty for contravening the foreign exchange rules is hefty. If the amount involved is quantifiable, the violator is liable, after adjudication, to a penalty of up to three times the amount. If, for instance, when you arrived in Mumbai you were caught trying to sell $3,000 to an illegal foreign currency dealer, the maximum penalty you will pay is $9,000. If the crime involves illegal acquisition of property, securities or foreign exchange holdings, in addition to payment of a penalty triple the sums involved, authorities have the power to confiscate the assets.
Source - eHow
