To stem the rupee’s slide, the Reserve Bank of India today imposed restrictions on the amount of foreign exchange that Indian companies and resident individuals can remit overseas, and banned the import of gold coins and medallions to contain the current account deficit.

Besides, the RBI exempted banks from statutorily parking 4 per cent of deposits with the RBI and investing 23 per cent of deposits in central and state government securities on fresh non-resident Indian deposits of three-year maturity. This exemption will allow banks to pay more interest on NRI deposits.

The central bank also slashed the limit for fresh overseas direct investment (ODI) transactions from 400 per cent of the net worth of an Indian entity to 100 per cent of its net worth (that is, the amount by which assets exceed liabilities). Remittances by resident individuals under the Liberalised Remittance Scheme (LRS) have been reduced to $75,000 from $200,000 during a financial year.

Use of LRS for acquisition of immovable property outside India directly or indirectly will not be allowed, the RBI said in a notification. These measures came after the rupee closed at an all-time low of 61.44 to the dollar against Tuesday’s close of 61.18.

On gold imports, Economic Affairs Secretary Arvind Mayaram said out of the total imports, 20 per cent will need to be exported while 80 per cent can be used for domestic consumption. Imports can be done only on full upfront payment. The same norms will be applied for import of gold ore.

Exemption

While the reduced ODI limit will also apply to remittances by Indian companies for setting up unincorporated entities overseas in the energy and natural resources sectors, Navratna public sector undertakings (PSUs) have been exempt.

The reduced limit will not apply to investments by ONGC Videsh Ltd and Oil India Ltd in overseas unincorporated entities and incorporated entities in the oil sector.

(This article was published on August 14, 2013)
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