could now find it easier to buy foreign assets, with the Reserve Bank of India (RBI) restoring the limit on their overseas direct investments (ODIs) under the automatic route to 400 per cent of net worth. The limit was cut by three-fourths to 100 per cent in August last year after the rupee touched an all-time low of 68.80 a dollar.
There is, however, a caveat. RBI said any financial commitment exceeding $1 billion or its equivalent in a financial year would still require a prior approval. RBI said funding of ODIs through external commercial borrowings would continue with the limit of 400 per cent of net worth.
The move is the latest in a series of steps taken by the central bank in recent months to relax the controls imposed in August. Last month, it had raised the Liberalised Remittance Scheme (LRS) limit to $125,000 without end-use restrictions, except for prohibited foreign exchange transactions like margin trading, etc.
State Bank of India Chief Economic Advisor S K Ghosh said though the measure might not immediately lead to higher investments by Indian companies abroad, it was a clear signal to the world that India’s external-sector problems were behind. The foreign exchange reserves, at about $ 314 billion as of June, was comfortable, he added.
The CEO of an engineering company said the move would not have much impact, as there was not much appetite among Indian companies to invest in new projects or make large-scale acquisitions. “The cap would have had an impact if it had come earlier, when Indian companies were actively searching for foreign assets,” he added.
ODIs by Indian corporates during April-August last year was $16.36 billion. This went up to $20.54 billion in the September-March period. In the current financial year till May, the total ODI was $7.18 billion, including guarantees and investments through equity and loan, according to RBI data.
Meanwhile, the rupee ended at 59.74 a dollar on Thursday, compared with the previous close of 59.69 a dollar. “This step will not have any impact on the rupee immediately. It shows RBI is more comfortable with the level of the rupee. However, over a period, there may be outflows from India in the name of investments abroad,” said a senior treasury official of a public-sector bank.