Don't mistake RBI measures for capital control, says Chidambaram

As a part of its fight to prop up the battered rupee, Reserve Bank on Wednesday unveiled a slew of measures aimed at curbing forex outflows. The central bank has reduced the limit for overseas direct investment (ODI) by domestic companies under automatic route from 400 percent of the net worth to 100 percent.

While the RBI’s move has set alarm bells ringing for Indian companies, the Finance Minister P Chidambaram sought to clarify that these measures should not be viewed as retrograde and will wound down at an appropriate time.

In an interview with CNBC-TV18, he said that India was not going back to an era of capital controls and that he was strongly opposed to the idea of capital control.

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The most point to make is that corporates are not being discouraged from assets acquiring abroad or companies acquiring abroad or invest abroad, he added.

He also said that routes for raising funds abroad will remain and any company that requires to raise more funds could always approach the central bank.

“These are, I believe, measures that are temporary and I am sure that RBI will revisit it at an appropriate time…So, this is not to be understood as capital control,” Chidambaram told CNBC-TV18.

[caption id=“attachment_1034305” align=“alignleft” width=“380”] P Chidambaram in this file photo. PTI[/caption]

“There is another part of the circular, which I believe, says that if a corporate wants more money for investment abroad, he can approach the RBI for approval.

Under the present dispensation, up to 400 percent net-worth is under the automatic route and beyond 400 percent is under the approval route. That limit has been lowered to 100 percent under the automatic route and for anything beyond, approval is required. So, it is not a capital control, it is simply a tweaking of limit,” he added.

He further tried to soothe investor nerves by saying that the government and RBI is doing everything possible to contain India’s current account deficit at $70 billion and to finance it fully and safely.

“It is an important objective, I don’t think anyone needs to over interpret or over react to these moves,” said Chidambaram.

Firstpost Editor-in-Chief R Jagannathan pointed out in a earlier piece, that RBI’s move can well be seen as taking India back in time to 1991.

He wrote, If this norm had in place 10 years ago, the Tatas would have thought thrice about buying Corus or Jaguar Land Rover, the Birlas would have found it tough to buy Novelis and Bharti Airtel may not have bought Zain. All these deals would have had to pass through tedious government clearances.