RBI not considering any capital control measures

The Reserve Bank of India (RBI) is not considering any capital control measures, it was clarified today as the central bank's recent capital outflow measures spooked the stock markets.

Top sources in RBI blamed "unwarranted rumours" about controls on FII money to the nearly 770 point drop in the benchmark Sensex and rupee dipping to its lowest levels.

No capital control measures were being considered, the sources insisted.

India, they said, had no record of keeping controls on FII money and the capital outlow measures announced on Wednesday were no way bringing back the control regime.

The move to cut the amount companies can invest overseas without seeking approval to 100 per cent of their networth from 400 per cent does not mean firms cannot invest the previously stated limits, sources said.

Firms can still invest 400 per cent of their networth outside but the caveat added is that the first 100 per cent will be allowed under automatic route and for the rest prior approvals would need to be taken, they added.

On lowering of the limit residents remit to USD 75,000 a year from the previous USD 200,000, they said what RBI has done is to withdraw the liberalisation done in 2007 to manage huge inflow of FII money.

It is only the last bit of liberalisation of remittance that has been taken off, the sources added.

Sources said throughout the history of Indian reforms, not once was it contemplated to control or restrict FIIs taking out their principal or dividend. Under FEMA Act, it will be illegal to stop any such repatriation.

RBI and government steps since July to tighten cash supply, restrict currency derivatives and curb gold imports have failed to arrest the rupee's slump to record lows. The situation has been compounded as the nation struggles to attract capital to fund a record high current account deficit.

The rupee has weakened 28 per cent in the past two years, the biggest tumble since the government pledged gold reserves in exchange for loans from the International Monetary Fund in 1991.