The government on Friday allowed domestic companies to raise capital by getting listed and selling shares through foreign stock markets without being first listed on local exchanges or prior government permission.
The easing of rules is the latest in a string of steps that the government and the Reserve Bank of India (RBI) have launched in recent weeks to attract foreign capital to arrest a sliding rupee and contain current account deficit (CAD)—the difference between dollar inflows and outflows—that hit a record high of 4.8% of GDP in 2012-13.
The government has set a target to limit CAD to 3.7% of GDP or about $70 billion in 2013-14, down from $88 billion last fiscal.
The government and central bank had earlier imposed curbs on gold imports, put foreign exchange controls for companies and individuals and eased investment norms for a host of sectors such as telecom and high-tech defence.
Equity and currency markets in most emerging countries including India have tumbled after investors began flocking to safer locations ever since US Federal Reserve chief Ben Bernanke hinted on rolling back the policy of pumping in cheap money to aid recovery in the world’s largest economy.
The rupee, despite a smart relief rally since the beginning of this month, has fallen sharply. A sliding rupee is toxic. For a start, it means that India needs to shell out more cash to import fuel, and this in turn raises the prices of transporting goods, leading to higher inflation.
“It has now been decided with the approval of the finance minister that unlisted companies may be allowed to raise capital abroad without the requirement of prior or subsequent listing in India,” a statement issued by the finance ministry said.
The capital raised abroad could be directed towards paying off existing foreign debt, or for operations abroad, including acquisitions, the statement said.
This scheme would be implemented on a pilot basis for a period of two years from the date of notification. The impact of this arrangement will be reviewed thereafter.
If a company fails to utilise the funds raised abroad, it would have to remit the money back to India within 15 days. The money would be parked only in banks recognised by the RBI.