said NS Venkatesh, Chief General Manager & Head of Treasury, IDBI Bank.
Under the LRS, the RBI allowed residents to remit up to an amount of $200,000 a financial year for any permitted current or capital account transactions or a combination of both with effect from September 26, 2007.
The scheme was introduced in February 2004 to freely remit up to $25,000 a year. The amount was enhanced to $50,000 a financial year in December 2006, then further to $100,000 a financial year in May 2007 before enhancing it to $200,000 in September 2007.
According to a banking source, as the outflow under LRS was around $1 billion in the last three years, it’s not considered as a vulnerable area.
On the contrary, the rise in inflows by way of NRI deposits was four times from $3.2 billion in FY’11 to $14.8 billion in FY’13.
Industry chambers like Confederation of Indian Industry has termed the tightening of ODI (overseas direct investment) as retrograde and too drastic a step. Observing that outward investment by India has progressively come down from $16.5 billion in 2010-11 to $7.1 billion in 2012-13, CII president K Gopalakrishnan said, “With such a minimal amount of outflows impacted, the gains to the rupee may in fact not be as much as expected. We are deeply concerned that such a measure would also prove to be counterproductive as it would disrupt the ongoing investment plans of corporates.”
Venkatesh of IDBI Bank said corporates can directly go to the RBI for investment plans above the 100 per cent limit under the Approval Route. “The RBI has said it will consider the genuine needs of corporates under the Approval Route,” he said.
If the situation doesn’t stabilise, more measures could be in the offing. Leif Eskesen, Chief Economist for India & ASEAN, HSBC, says additional plumbing measures are likely needed, including potentially even bigger increases in fuel prices, interest surcharges on import financing, introduction of gold-linked savings instruments. In addition, it will likely prove necessary for the RBI to keep its liquidity tightening measures in place for longer, and it may even have to