In name of saving Indian rupee,RBI brings controls back

Indians can no longer buy a home abroad.

Written by Express News Service | Mumbai/ New Delhi | Published:August 15, 2013 5:57 am

Indians can no longer buy a home abroad. In a bid to check the drain on foreign exchange reserves,the Reserve Bank of India has brought back capital controls on Indians spending from their foreign exchange earnings.

In a release issued after market hours,the bank sharply cut down the amount of foreign exchange an Indian may use to invest or spend abroad from the current annual limit of $ 200,000 to $ 75,000.

This means residents won’t be able to take out more than $ 75,000 in a year by way of travel or investment,and are barred from making an investment in a property abroad.

But foreign exchange analysts said the measure will have little impact as a firefighting measure for the RBI,as it tries to conserve resources to defend the rupee and cut back on the size of the current account deficit.

In FY-13 Indians used this route to take out $ 3.3 billion from India,a minuscule amount compared to the total forex reserves of over $ 265 billion. The amount spent on property abroad was only $ 77 million.

Indraneil Sengupta,chief economist with Bank of America Merrill Lynch said,”We expect the RBI to instead take more proactive measures to stabilise the rupee.”

Options include floating either a sovereign or a non-resident bond to gather dollars to defend the rupee.

Speaking later,Arvind Mayaram,economic affairs secretary in the finance ministry,said there will be more restrictions on the import of gold,including a requirement that 20 per cent of each consignment should be earmarked for exports. Imports of gold coins and medallions will also be banned,he said.

RBI has also reduced the automatic limit for overseas direct investment by Indian companies. If a company wishes to buy a firm abroad or make a greenfield investment,it will have to get prior approval from the RBI if the sum is more than 100 per cent of the net worth of the Indian company. The ceiling for automatic investment had been progressively eased over the years to 400 per cent by 2007.

India Inc. had stepped up its investments abroad in the last two or three years. In FY-13 Indian companies have invested a little over $ 13 billion abroad.

The RBI circular said the reduction in limit would not apply to investments abroad by Navratna PSUs and companies making investments in the oil sector.

“The present set of measures is aimed at moderating outflows. However,any genuine requirement beyond these limits will continue to be considered by RBI under the approval route,” the circular said.

The government had rolled out the liberalised remittance scheme in 2004 to encourage individuals to acquire and hold immovable property or shares or debt instruments or any other assets outside India,without the prior approval of the RBI.

On Wednesday,the government raised import duties on gold and platinum to 10 per cent from 8 per cent,while the levy on silver was increased to 10 per cent from 6 per cent. The government will also seek to boost capital inflows with measures including allowing state-owned financial companies to issue ‘quasi-sovereign’ bonds to finance long-term infrastructure investment.

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