The new restrictions imposed by the Reserve Bank of India (RBI) on companies and individuals making overseas investments and remittances, apart from a blanket ban on gold coin imports, suggest a hint of desperation among the country’s policymakers. The measures announced on Wednesday, together with those over the past month, are not insignificant. Indian companies will henceforth have to seek special permission to make any direct equity investments abroad amounting to more than their current networth. Until now, they could automatically make such investments up to four times their equity and free reserves. Similarly, individuals were allowed to remit up to $200,000 abroad every year. This limit has been reduced to $75,000, money that cannot be used for buying any property abroad.

These curbs amount to a virtual return to capital controls. This is in stark contrast with the earlier policy that adopted a calibrated but definite shift towards capital account liberalisation. The measures with regard to gold, imports of which have now been barred in the form of coins and medallions, mark an even more radical reversal of the reforms process. Moreover, since early 2012, the import duty on gold has gone up nine-fold. Even the gold that banks and other nominated agencies may import now is tied to at least 20 per cent in each lot being earmarked for export. The balance 80 per cent may be sold to domestic jewellers or bullion dealers only against full upfront payment.

This raises the natural question: Are things so bad to justify these liberalisation-reversing measures? Are we back to a 1991-like external payments crisis situation? Maybe, this is the time for the Government to come out with a clear statement on the payments position. While the RBI has estimated India’s total short-term external liabilities maturing before March 2013 ** at over $172 billion, no proper official picture is yet available on the country’s preparedness in servicing these obligations. Finance Minister P. Chidambaram’s statement earlier this week in Parliament did not make any reference to the RBI’s figure, while reiterating that the current account deficit for 2013-14 will be “fully and safely financed”. If that is the case, why have the RBI and the Government been coming out with some restriction or the other almost every week? Prime Minister Manmohan Singh should have used his Independence Day address to throw some light on the external payments situation as a taking-the-nation-into-confidence exercise. Instead, he simply repeated the same story that this phase of slow growth “will not last long”. Unfortunately, the markets and the public are not buying that.

**Correction:

It has been stated that “the RBI has estimated India’s total short-term external liabilities maturing before March 2013 at over $172 billion." It should read as March 2014. The error is regretted.

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