Stable rupee may prod RBI to liberalise rules

Those travelling abroad may be allowed to spend $200,000 a year again

After withdrawing some of its earlier restrictions on gold import and raising the limit on importers’ forward contracts, the Reserve Bank of India (RBI) might do more.

It might, believe watchers, restore the norm which had allowed an individual travelling out of the country to spend up to $200,000 abroad in a year. And, liberalise the rules on offshore investments by domestic companies.

RBI had taken a host of measures in 2013 to arrest volatility in the rupee. The decision to unwind some of these might come because the rupee is now considered stable against the dollar, with the current account deficit coming down significantly, mainly due to a rise in the import duty on gold. The rupee has risen by nearly five per cent since the start of 2014. Experts believe it might rise more.

DURING THE STORM...

Key measures taken by RBI in 2013 to arrest volatility in rupee

• Curbed gold imports
• Barred banks from proprietary trading in currency futures and exchange traded options
• Capped LAF borrowing to 0.5% of net demand and time liabilities
• Raised the Marginal Standing Facility (MSF) rate
• Cut the amount an individual could take out of the country from $200,000 to $75,000
• Reduced the limit for overseas direct investment by domestic companies under automatic route from 400% of net worth to 100%

“The shift of rupee direction from an excessive bearish mode to extreme bullishness leads RBI to unwind the measures taken to arrest rupee weakness and sterilise the rupee liquidity pumped into the system through its dollar purchases,” said Moses Harding, group chief executive officer (liability and treasury management), Srei Infrastructure Finance.

He expects removal of the administrative restrictions on gold import, restoration of the Liquidity Adjustment Facility (LAF) corridor and retaining the Marginal Standing Facility (MSF) as a special-situation rate. Also, liberalisation in offshore investment rules for resident individuals or companies and in the limitations on hot money inflow from abroad.

Earlier this month, RBI liberalised the gold import norms’ 80:20 rule. Though the ratio hadn’t been changed (of re-exporting a fifth of all gold imported by nominated agencies), star and premier export houses have been allowed to import, while banks and nominated agencies have been allowed now to provide gold for domestic use as loans to jewellers and bullion traders.

Besides, RBI allowed importers to book forward contracts, under the past performance route, up to 50 per cent of the eligible limit. Earlier, this limit was 25 per cent. The eligible limit is computed as the average of the previous three financial years’ import turnover or the previous year’s actual import turnover, whichever is higher.

“The liquidity (restriction) measures might not be withdrawn by RBI. But maybe it will allow people travelling abroad to (again) spend $200,000 there in a year, as against the present limit of $75,000 (fixed last August). That might be announced anytime,” said the treasury head of a public sector bank.

The rupee had touched an all-time low of 68.85 a dollar on August 28, during intra-day trade.