If you’re planning to invest in the shares of Apple or Microsoft on the Nasdaq or the New York Stock Exchange, you will need to downsize your investment plans. Or if you have plans to buy an apartment in Dubai, you will need to find resources locally in the Gulf region. Similarly, if you have planned to gift $2 lakh to your sister in Australia, you will have to reduce the amount drastically.
The reason? The Reserve Bank of India (RBI), which is battling to bring down the current account deficit and stabilise the rupee, has tightened the norms governing outflows. The central bank reduced the amount that a resident individual can remit outside India from $2,00,000 to $75,000 per annum under the Liberalised Remittance Scheme (LRS).
Indians remitted $1.206 billion (or Rs 7,300 crore) during the year ended March 2013 for various purposes, including investment in stocks, debt, property, travel, medical expenses, donations, maintenance of close relatives, studies abroad and gift. Of this, $261 million was accounted as gift, $231 million for investment in equity and debt for $226 million.
Indians who have been investing in mutual funds, venture funds, unrated debt securities, promissory notes, under this scheme will have to reduce their investments now. There’s less money available for medical expenses, gifts, maintenance of close relatives living abroad, donations, travel and overseas studies.
The free run of corporates to invest abroad also ended. The RBI has restricted overseas direct investment under the automatic route to 100 per cent of net worth from 400 per cent from earlier under the approval route.
Corporates who found it easier and profitable to invest abroad in the last three years had taken out $19 billion in FY 2013. The restriction can save $2-3 billion as a large number of FDI seekers will have to do a lot more paperwork.
Experts don’t think these measures will have any adverse impact on corporates or even individuals. “These are not capital controls. This is basically tightening of rules to bring stability in the external sector. There’s no adverse effect on the industry and these are temporary measures,”