Capital outflow curbs partially eased

According to the central bank companies raising ECBs will be allowed to invest up to 400% of their net worth abroad

The Reserve Bank of India (RBI) partially relaxed restrictions imposed in August on capital outflows from residents and allowed Indian companies more leeway if they opted for raising funds through external commercial borrowings (ECBs).

According to the central bank, companies raising ECBs will be allowed to invest up to 400 per cent of their net worth abroad. Last month, RBI had reduced the overseas direct investment limit to 100 per cent of a company’s net worth for all companies except for few state-run firms. The central bank also clarified that overseas direct investment limits will not be applicable for commitments made on or before August 14.

Besides, restriction of 100 per cent of net worth shall not apply to the financial commitments funded out of exporters’ foreign exchange accounts or if funds are raised through either global or American depository receipts, said RBI.

The central bank's capital control move, announced last month, had invited widespread criticism from industry. The move was directed towards arresting the volatility in the rupee against the dollar.

The rupee appreciated on Wednesday by nearly one per cent against the dollar.

The appreciation was due to   dollar sale by state-run banks acting on behalf of the central bank. Sentiments also got a boost because the new governor Raghuram Rajan assumed charge in RBI.

According to currency dealers, Rajan is set to bring a new approach to defend the rupee.

In the recent past, most approaches have been directed towards draining liquidity and raising short-term rates. Unfortunately, the measures failed to make an impact due to which last week, the rupee had touched an all-time low of Rs 68.85 per dollar.