The panic witnesssed in Indian market on fears of re-introduction of capital controls by the RBI to curb the slide of the Indian rupee was over-played, industry body Assocham said today.
"The scare around depreciation of rupee has been over- played so much so that it completely over-awed the Reserve Bank and the government, sending wrong signals of being panicky over the capital outflows back to the US," according to an Assocham survey.
Amid continuing pressure on the rupee, the RBI recently announced stern measures, including curbs on Indian firms investing abroad and a reduction of outward remittances, to restrict the outflow of foreign currency.
"...The situation was not precarious as to force the RBI and the Finance Ministry to take certain measures which were misconstrued as the return of capital controls. Even though the Finance Ministry and RBI tried to correct the impression, enough damage has been done," the survey said.
The central bank reduced the limit for overseas direct investment (ODI) by domestic companies, other than oil PSUs, under the automatic route from 400 per cent of net worth to 100 per cent. However, Oil India and ONGC Videsh were exempt from this limitation.
As per the survey, 61 per cent of the respondents felt that the government and the RBI should have kept their nerve even if the rupee was slipping in line with several other emerging markets like Indonesia, Brazil, South Africa and Turkey.
RBI also reduced the limit for remittances made by resident individuals under the liberalised remittances scheme (LRS) from USD 2 lakh to USD 75,000 a year.
Resident individuals were, however, allowed to set up joint ventures or wholly owned subsidiaries outside under the ODI route within the revised LRS limit.
The pulling out of foreign institutional investors (FIIs) from the entire emerging markets pack was not a doing of the Indian economy or its government but was entirely based on the signals emerging from the Federal Reserve, the survey said.
However, an impression of panic was sent doing a considerable damage to the financial markets and the overall economic sentiment, it revealed.
The central bank notified that incremental non-resident deposits (FCNR