Targeted monetary measures by the Reserve Bank of India (RBI) along with short-term restrictions on capital outflows to curb the volatility in the Indian rupee are likely to boost the economy's growth prospects considerably by January next year, industry body Assocham said today - rupee to US dollar exchange fell to new low on Monday.
"I am confident that curbing of volatility in Indian rupee will impart macro financial stability and improve India's medium- term growth outlook considerably by January 2014," Assocham President Rana Kapoor said in a statement.
In the current context, the combination of transient and targeted monetary measures along with short-term restrictions on capital outflows will eventually buffer the Indian rupee, with support from government measures to attract capital inflows, he added.
Amid continuing pressure on the Indian rupee, the RBI last week announced stern measures, including curbs on Indian firms investing abroad and a reduction of outward remittances, to restrict the outflow of foreign currency.
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.
Terming the recent turbulence in the country's foreign exchange markets as an "overreaction" to Federal Reserve's signal of tapering its ongoing quantitative easing, Kapoor said: "Currently, although the policy intent (of the RBI) is towards targeted monetary and liquidity tightening, the tools adopted have been unconventional".
As part of the measures taken last week to stem the fall in the Indian rupee, 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.
Moreover, the central bank notified that incremental non-resident deposits (FCNR and NRE) with a maturity of three years and above will be exempt from maintenance of statutory balance with the central bank.
Despite these steps, continuing its slide, the Indian rupee today breached 64-mark against dollar by falling 98 paise to trade at record low of 64.11 on persistent dollar demand and a weak opening in the