According to sources, major liberalisation in the norms for using proceeds of ADRs and GDRs will form part of the overall strategy of the government to completely decontrol the issue of ADRs/GDRs by resident companies.
The government is also expected to permit Indian citizens to use a substantial sum, which may be up to $50,000 per annum, to purchase goods or services, open a bank account, or purchase assets abroad. This step will ensure complete convertibility without any significant increase in either capital inflows or import of goods and services. Simultaneously, Mr Sinha is also likely to allow domestic companies to use a substantial amount for making capital transfers abroad.
The norms are also expected to be liberalised for allowing participation of the foreign employees to the employee stock option plans offered by domestic companies, sources said, adding with this steps to completely decontrol external commercial borrowings, and make portfolio investment by the non-resident
Indians and foreign institutional investors more attractive, are also in the offing. The government may also decontrol the flow of direct investment by domestic companies abroad up to a certain limit per annum.
Mr Sinha in his Budget speech for 2000-01 had stressed the need to encourage domestic firms and businesses to grow into strong, India-based multinationals and had liberalised the policy for acquisition of software companies in the overseas markets and also allowed registered partnership firms and companies providing professional services to make overseas investment.
The reporting Budget had allowed domestic companies to invest up to $50 million abroad on an annual basis through the automatic route and enhanced the limit for investment abroad by companies which have issued ADRs/GDRs to 100 per cent from 50 per cent of the proceeds.
Further, Mr Sinha had also announced two-way fungibility for ADRs/GDRs among other measures as part of his package for capital account liberalisation.
Sources said the government is set to take further steps for moving closer to a complete capital account convertibility in the forthcoming Budget.
Experts feel that together with these steps, there is also a need to take certain steps to apply current account convertibility, announced in 1994, in practice. They also pointed out that use and purchase of foreign exchange by individuals to import goods and services in the country should be made virtually free, as the quantitative restrictions on imports imposed on protection grounds, have already been removed.