Measures undertaken towards flexibility in capital account transactions during the recent past

Capital controls are being removed selectively- in capital account transactions- though full convertibility of the Indian rupee has been permitted in the current account for quite some time now. The Union Budget 2002-2003 has made the non-resident schemes fully convertible.

Other measures announced during the current year included a hike in foreign exchange allowance for individuals up to US $ 10,000 and permission to Indian citizens to maintain foreign currency deposit out of foreign exchange earned/ retained from travel expenses.

In view of the high level of foreign exchange reserves being held by the economy and the comfortable external sector scenario, capital controls were further liberalized with a view to introducing greater flexibility in capital account transactions. The measures include:

i. Removal of the existing limit of US $ 20000 for remittance under the ESOP scheme.

ii. Discontinuation of limits on trade-related loans and advances by EEFC account holders, though the transitions will continue to be reportable to RBI.

iii. General permission to retain ADR/GDR proceeds abroad for future forex requirements.

iv. Permission to corporate, which have set up their branches and offices abroad, to acquire immovable property overseas for their business/staff residential purposes.

v. Permission to listed Indian companies to invest abroad in companies listed in recognised overseas stock exchanges, and having at least 10 percent shareholding in a company listed on a recognised stock exchange in India on January 1 of the year of investment. Such investments should not exceed 25 per cent of Indian companies net worth as on the date of the last audited balance sheet.

vi. Permission to mutual funds to invest abroad in companies which are listed on overseas stock exchanges, and which have at least 10 percent shareholding in a company listed on a recognised stock exchange in India on January 1 of the year of investment. The overall cap for investment abroad by mutual funds has been raised to US $ 1 billion.

vii. Apart from companies, individuals are also permitted to invest abroad in companies. However, no investment limits have been fixed for individuals.