RBI imposes capital controls to prop up rupee

14 Aug 2013


The Reserve Bank of India (RBI) today announced a slew of measures aimed at cubing foreign exchange outflows, in a bid to stem the continuing fall of the rupee.

RBI reduced the limit of overseas direct investment (ODI) for an Indian party to 100 per cent of its net worth from the existing limit of 400 per cent as part of the capital control measures announced today.

The measures would come into effect immediately and would apply to all fresh overseas direct investment proposals on a prospective basis but would not apply to the existing investments set up under the extant regulations, RBI said in a notification.

The reduced limit would also apply to remittances made under the ODI scheme by Indian companies for setting up unincorporated entities outside India in the energy and natural resources sectors.

However, this reduction in limit would not apply to investments by Navratna PSUs, ONGC Videsh Limited and Oil India in overseas entities in the oil sector, RBI said.

RBI also reduced the limit for remittances made by resident individuals, under the Liberalised Remittance Scheme (LRS Scheme), from $200,000 to $75,000 per financial year.

Resident individuals, however, have been allowed to set up joint venture or wholly owned subsidiaries outside India under the ODI route within the revised LRS limit.

RBI said while the new curbs on the use of LRS for prohibited transactions like margin trading and lottery will continue, the use of LRS for acquisition of immovable property outside directly or indirectly will not be allowed.

RBI said these measures are aimed at moderating forex outflows and that any genuine requirement beyond these limits will continue to be considered by RBI under the approval route.

RBI said it would separately notify necessary amendments to the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations 2004.

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