Open Sesame For Overseas Funds Mop-Up Urged

The Tarapore committee has suggested a plethora of concessions for the opening up of avenues for accessing overseas funds to the non-resident as well as Indian residents.

The committee has recommended outflows up to US $ 25,000 per annum in Phase I (with higher limits in subsequent phases) of capital account convertibility process for resident individuals. Resident corporates could also be allowed similar facilities. In phase 2, the limit will be increased to US $ 50,000, and in phase 3, it will be increased to US $ 100,000.

Further, resident individuals could be allowed to avail of loans from non residents up to an amount of US $ 2,50,000 (with increase in subsequent phases) in Phase I on repatriation basis with payment of interest at LIBOR. Similarly, corporates and businesses also be freely allowed to avail of loans from non-residents up to US $ 2,50,000 (with increase in subsequent phases) in Phase I on repatriation basis with payment of interest at LIBOR on similar lines as available to resident individuals.

 

However, the committee has advised a cautious approach in allowing non-resident banks to open accounts in India and invest /borrow in these accounts for arbitraging between markets.

In Phase I, while the existing restrictions on opening/operating on such accounts to support merchant-based activities may continue, the existing restrictions on forward cover to non-resident banks could be removed and forward cover provided to the extent of the balances in these accounts.

Furthermore, the present limit of Rs.150 lakh on overdrafts in such accounts could be increased commensurate with the business and investment facilities may also be provided to non-resident banks in such accounts. In Phase III, non-resident banks may be allowed to freely open rupee accounts with banks in India without any restrictions on their operations.

Currently, non-residents are not allowed any capital transfers out of their assets in India other than out of investments made by them on repatriation basis. The committee, however, has considered the question of permitting non-resident individuals to effect capital transfers out of their non-reportable assets in India.

Consistent with the view taken by it in regard to capital outflows for resident individuals, the committee has recommended that capital outflows up to identical annual limits may be allowed out of non-repatriable assets of such non-residents.

Under the present norms, in the non-resident, non-repatriable rupee deposit account (NRNRRD) scheme, the principal is non-repatriable, but with the introduction of current account convertibility, interest on such deposit is freely repatriable. The continuation of such a scheme is inconsistent with CAC. Hence, the committee recommends that the scheme be terminated in Phase I.

The funds under the existing NRNRRD scheme would get merged with other non-repatriable assets on maturity. In a bid to give incentive to NRNRRD account holders, the committee suggests that in case the maturity proceeds of the NRNRRD accounts are placed in a special three year NRE account (without facility of premature withdrawal), the non-resident may be allowed to repatriate the full amount of such deposits on maturity.