India back to 1991 as RBI imposes capital curbs to stabilize rupee

[saneindian]

The Reserve Bank of India imposed partial capital controls on companies and individuals to stabilise the rupee, but the steps are likely to be perceived as turning the clock back on two decades of liberalisation. Overseas direct investment (ODI) by Indian companies has been cut three-fourths, 100% from 400%, making it more difficult for local corporates to buy overseas assets. But the central bank exempted state-run Navratna companies, including Oil IndiaBSE 4.09 % and ONGC Videsh, to ensure that its moves do not cripple energy security. RBI lowered overseas remittances by locals to $75,000 a year from $200,000, and prohibited investments in overseas property, dashing wealthy Indians' dreams of owning homes abroad. However, those in genuine need of foreign exchange beyond $75,000 per year could apply to the central bank for permission.

http://economictimes.indiatimes.com/news/economy/policy/india-goes-back-two-decades-as-rbi-imposes-capital-curbs-to-stabilise-rupee/articleshow/21832913.cms Frequent mentions in the pink papers on how the situation is slowly getting back to the days of ptre-1991. License permit raj is slowly coming back as UPA battles on economic front. One populist move after the other without doing much to curb expenses isn't helping either. The short term debt has jumped to nearly 27-28% of GDP compared to 4-5% 10 years ago and has been steadily rising. There have even been whispers of a IMF team in Delhi holding discussions with the govt on a bailout package. Has Manmohan SIngh taken us back to from it all began for him?

[BeautifulGame]

Chidambaram insisted that the intention was not to discourage corporates. "The most important point is that corporates are not being discouraged from acquiring assets abroad or investing abroad. It's just that the limit has been tweaked."

Nothing wrong with this.We increased the level to 400% (in 2007 by UPA) when our economy was doing exceptionally well and have reduced it to earlier level so as to direct investments domestically rather than abroad.Hardly back to 1991 And any credible link for the rumors of IMF loan package.Probably facebook rumors. Yes the economy is going through a rough time in the short term but the doom and gloom predictions some are making are a bit of a joke.Its just that the measures taken and suggested will take time

[Clarke]

Fiscal viscal show will go on. Our gold & oil imports are ever increasing and we've done squat to answer that. Anything else on the horizon ?

[rkt.india]

Fiscal viscal show will go on. Our gold & oil imports are ever increasing and we've done squat to answer that. Anything else on the horizon ?

Gold is useless. Its import should be reduced.

[CG]

Gold is useless. Its import should be reduced.

They are going to raise import taxes and make it costlier by 600rs.Regarding debt we are still in decent shape with enough forex reserves.I believe there will be some reforms which will improve the outlook as the big fall in currency is certainly not sustainable.

[Clarke]

BSE crashes by 769 points, Rupee crosses 62 vs Dollar. Tough times ahead.

[adi B]

BSE crashes by 769 points' date=' Rupee crosses 62 vs Dollar. Tough times ahead.[/quote'] nah!! its all fine and kewl..we have got everything under control :dontmentionit:

[ravishingravi]

RBI cannot do anything on rupee

[surajmal]

Perhaps this will give the planners a push to devise a proper manufacturing policy? Perhaps? Too big a khayali pulao? Who am I kidding. Infrastructure situation hasn't improved a lick in the last decade. Tough times ahead indeed.

[randomGuy]

Fiscal viscal show will go on. Our gold & oil imports are ever increasing and we've done squat to answer that. Anything else on the horizon ?

Methane Hydrate's joint exploration with Japan in the Bay of Bangal might be the answer for future self-reliance. But there is need for clear policy and to be pro-active. Link 1 Link 2

[CG]

It was expected as fed will start reducing the stimulus.

[Malcolm Merlyn]

Need to open up the damn economy.Too many riders for the companies who bring FDI.WTH about national security being compromised in whichever damn sector the govt. opens FDI.As if a minority share holder or even a majority one which has a good reputation world wide and will have all the infrastructure in India only for its India Ops will compromise security. The only time a foreign company and its officials needed to be brought to book,the govt escorted Anderson to the airport.

[randomGuy]

Rupee may touch 65/dollar, analysts say more pain ahead

[diga]

better to have early elections, than suffer these economics for next 9 months.. lets hope whoever wins will have Indias long term goals in mind than short term electoral gains

[ravishingravi]

It was expected as fed will start reducing the stimulus.

No. If that was the case then EUR and GBP would also have reacted

[CG]

No. If that was the case then EUR and GBP would also have reacted

I was talking about stock markets.We were closed on 15th where asian markets slumped 2% so on 16th we saw the fall.Capital restriction and overall mood in india also played a part.Regarding currency rupee is currently one of the worst performing currency so i would not be surprised it falls more than others.

[ravishingravi]

I was talking about stock markets.We were closed on 15th where asian markets slumped 2% so on 16th we saw the fall.Capital restriction and overall mood in india also played a part.Regarding currency rupee is currently one of the worst performing currency so i would not be surprised it falls more than others.

That was one factor. The bigger factor was the news in domestic market that our rating will be downgraded.

[saneindian]

Whispers get louder in Delhi for an IMF bailout

As India grapples with an unprecedented current account deficit (CAD), threatening to snowball into a balance of payments crisis, if unchecked, finance ministry mandarins have begun to murmur that it may be prudent to sound out the International Monetary Fund (IMF) for concessional loans to ride out the current storm. A core responsibility of IMF is to provide loans to member countries experiencing actual or potential balance of payments problems. This financial assistance enables countries to rebuild their international reserves, stabilise their currencies, continue paying for imports and restore conditions for strong economic growth, while undertaking policies to correct underlying problems. Officials in the finance ministry hint that the government is already exploring this window for accessing up to $20 billion in soft loans from IMF. Apologists for such an option, who prefer to speak from behind the veil of official secrecy, believe that the government must seriously explore an IMF loan rather than try to finance the CAD with hot money from foreign institutional investors (FIIs) or with quasi-sovereign bonds and external commercial borrowings that are expensive. IMF introduced the flexible credit line in April 2009, in the wake of the global economic crisis, and enhanced the window a year later, providing loans to countries with very strong fundamentals as a form of insurance for crisis prevention. No policy conditions need to be met once a country has been approved for this credit line. Colombia, Mexico and Poland have been provided combined access of over $100 billion under this arrangement; its use, according to IMF, has been found to lead to lower borrowing costs and increased room for policy manoeuvre. IMF loan, the apologists say, could be ‘very sensible’. First, it comes cheap, and secondly, such loans are for long-term (five to six years) tenure. This would give the country a breather for repayment, as the economy would be up and running by then, an official who has been party to such prep talks, told Financial Chronicle. Others, including a former RBI governor, top government economists and senior bureaucrats seconded the view. However, most believe that the government, in its last leg in office, needs courage to tap IMF in an election year. Unlike 1991, when India’s foreign exchange reserve was just sufficient to meet two weeks’ imports, the country is now on a stronger wicket with a $280 billion reserve, which is sufficient to meet imports for the next six to seven months. RBI’s outgoing governor D Subbarao believes that India’s current economic situation does not warrant any move to seek loans from IMF. At the customary press conference after the monetary policy on July 30, Subbarao said, “I don’t believe that we are in a situation where we have to go to IMF. We are fairly resilient." But BJP MP Piyush Goyal feels that a $280 billion foreign exchange reserve is insufficient considering that the country’s outstanding debt is around $390 billion. During a short duration discussion on the state of the economy in the Rajya Sabha last week, Goyal said both prime minister Manmohan Singh and finance minister P Chidambaram were misleading the nation by saying they had protected the foreign exchange reserve by adequately financing the current account deficit. In another year, India’s external debt is expected to mount to $490 billion, Goyal said, adding such a situation did not mean protecting the reserve. In 1991, India’s external debt was $1 billion surplus compared with its reserve then. Today India’s external debt is $100 billion deficit compared with its reserve now. This is not a happy situation, Goyal said. Finance minister P Chidambaram announced a series of measures in Parliament to curtail the CAD to $70 billion or 3.7 per cent of GDP in 2013-14 from $88.8 billion or 4.8 per cent of GDP in 2012-13. His measures included hiking import duty on gold and restrictions by RBI on capital outflows. Last weekend, prime minister Singh cautioned, “The time has come to look at the possibilities and limitations of the monetary policy in a globalised economy and dealing with the constraints of the macroeconomic problems. That is where a fresh thinking is called for.” India has not taken a structural adjustment loan from IMF since its 1991 balance of payments crisis. The IMF loan came with stringent conditions to carry out economic reforms. Now that the situation is not very bad, and the conditions would not be very stringent, opinion-makers, both inside and outside the government, suggest it may be better to access an IMF loan now, than later, when the situation deteriorates. “At a time when the European countries have accessed IMF loans, why not India? It has certainly not been politically easy for European countries,” an official said. BJP’s deputy leader in the Rajya Sabha, Ravi Shankar Prasad, has opined that there must be something seriously wrong with the economy. “The sliding rupee is a very very serious concern. I hardly need to emphasise that it is a direct byproduct of the current account deficit and the way the economy has been managed,” he said. Prasad said he had asked FII representatives at a recent global investors’ meet in Mumbai how they saw India. “They (FIIs) said, very frankly, we have closed the file. We are waiting for elections.” That, Prasad said, was a very honest answer.

http://www.mydigitalfc.com/economy/whispers-get-louder-delhi-imf-bailout-091

[ravishingravi]

62.50 today.

[diga]

The fundamentals of the Indian economy are "completely sound" and the recent upheaval in the stock markets and slide in the rupee-value were due to the choppiness in the global economy, Information and Broadcasting Minister Manish Tewari said Monday. "The foundation of our economy is completely safe and sound, and keeping that in mind whatever people do in the stock markets they should keep in mind," Tewari, who was earlier Congress spokesperson, told reporters on the sidelines of an event here.

:cheer: