In a bid to offset the tide of foreign exchange pouring into the country, the Reserve Bank of India (RBI) on Tuesday announced a slew of relaxations, thereby moving a step closer towards capital account convertibility.
Among the measures: hiking the investment limit in overseas joint ventures by domestic companies, enhancing the limits on portfolio investments and prepayment of external commercial borrowings, and increasing the limits for overseas investments by funds and individuals.
Investment in overseas joint ventures and wholly owned subsidiaries of Indian companies will now be permitted up to 400% of the net worth, from the existing 200%, of the Indian company under the automatic route. The enhanced limit will also be available to registered partnership firms, a release from RBI stated.
In order to provide greater overseas portfolio investment opportunities, the limit of 35% of net worth for portfolio investments by listed companies is being increased to 50%.
Further, the requirement of 10% reciprocal shareholding in listed Indian companies by overseas companies for overseas portfolio investments by Indian listed companies has been dispensed with.
RBI also relaxed norms on the existing limit for prepayment of external commercial borrowings without RBI approval. The limit has now been raised to $500 million from $400 million, subject to compliance with the minimum average maturity period as applicable to the loan.
As for overseas investments by mutual funds, the aggregate ceiling for overseas investments has been upped to $5 billion from $4 billion.
The existing facility of investing up to $1 billion in overseas exchange-traded funds would continue.
The limit for individual investors under the Liberalised Remittance Scheme has also been enhanced to $200,000 from $100,000. Meanwhile, bankers said the RBI?s move to improve outflows was timely, though it was too early to comment on its effectiveness. A senior research analyst at a foreign institutional investor said foreign exchange inflows have been on the rise, especially after last week?s Federal Reserve rate cut by 50 basis points. ?It was only logical that the monetary authorities and the government figured out ways to improve outflows,? he said.
The rupee has been surging ever since the Fed rate cut. The domestic currency, which was 40.20 a dollar until around eight days ago, ended Tuesday at 39.75 largely on account of huge dollar inflows through FIIs investing in equity and debt markets. FII investments after the Fed rate cut have been around $1.2 billion.