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RBI tightens your forex spending

Property purchase, M&A, corporate training, trading seem to have been brought under pre-1991 style tight capital controls by RBI. HT reports.

business Updated: Aug 14, 2013 21:49 IST
HT Correspondent

In a move that seemed like a throwback to the pre-1991 controlled-economy era, the Reserve Bank of India (RBI) on Wednesday slapped a series of foreign exchange restrictions in its fight to shore up the rupee, making overseas property purchase, travel and acquisitions by companies difficult.

It also brought back case-by-case approvals in vogue.

It more than halved the amount of dollars an individual can carry overseas in any given year and capped Indian companies' overseas investment limits to a quarter of what it is currently-a move that will likely hurt global expansion plans of corporate India.

It also barred individuals from buying property abroad using foreign exchange bought at home as part of a broad strategy arrest dollar outflows and prop the rupee that is cantering close to a record 62 to a dollar despite a string of recent measures.


“The measures are aimed at moderating outflows. However, any genuine requirement beyond these limits will continue to be considered by RBI under the approval route,” the RBI said.

Under the new rules, individuals will be allowed to spend only $75,000 (about R46 lakh) a year from $200,000 (about R1.22 crore). Companies can invest only upto 100% of their networth in overseas locations, a fourth of the current-level of 400% — a move that will likely force companies to change plans to acquire overseas assets and companies.

“This reduced limit would also apply to remittances made under the overseas direct investment scheme by Indian companies for setting up unincorporated entities outside India in the energy and natural resources sectors," the RBI said in a statement.

Current restrictions on use of foreign exchange on prohibited transactions, such as, margin trading and lottery would continue. Use of forex for buying immovable property outside India will also not be allowed."

Resident Individuals have, however, now been allowed to set up Joint Venture (JV)/Wholly Owned Subsidiary (WOS) outside India under the ODI route within the revised LRS limit.