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FinMin, RBI dismiss fears of reverting to cap control regime

Seeking to calm rattled investors, the government and RBI today said there was no reverting to capital control regime -- the fear of which spooked stock market, sent rupee to its lowest level and pushed gold prices up by a record Rs 1,300 per 10 gm.

On a day when Sensex fell nearly 770 points or 4 per cent and rupee breached 62 to a dollar on concerns among large investor of capital curbs, the government and RBI went into fire-fighting mode assuring there was no move to check repatriation of funds by FIIs.

"They are saying that a capital control is coming in... There is no question of us putting any restriction on outflows which are commercial in nature, which means whether it is FII sell...," Economic Affairs Secretary Arvind Mayaram told reporters here.

He further said: "there is no control of outflows of dividends, profits, royalties, or on any kind of commercial outflows which happen in the normal course".

Top sources in Reserve Bank blamed "unwarranted rumours" about controls on FII money to the nearly 770 point drop in the benchmark Sensex and rupee dipping to record low of 62.03 intra-day.

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

To restrict the outflow of foreign currency, the RBI had on August 14 announced stern measures, including curbs on Indian firms investing abroad and on outward remittances by resident Indians.

The central bank reduced the limit for overseas direct investment (ODI) by domestic companies, other than oil PSUs, under the automatic route from 400 per cent of net worth to 100 per cent. Higher levels of ODI would now need prior approval from RBI.

The measures taken by the RBI cannot be called capital control measures and they had more to do with reducing stress on the balance sheets of corporates, a finance ministry official said.