In the Budget 2000 speech, the finance minister announced important major steps towards capital account convertibility.
He allowed full convertibility of non-resident Indian (NRI) deposits and NRI income in India such as rent, dividend and pension interest etc. For making investments abroad the Indian companies were allowed to remit up to $100 million under the automatic route.
Overseas investments in joint ventures advances abroad by market purchases up to 50 per cent of their net worth was also allowed. The Indian mutual funds also were allowed investment in rated securities abroad.
Further the finance minister announced liberalisation of norms for pre-payment of external commercial borrowings. The foreign exchange convertible bond of scheme was placed under the automatic route up to $50 million.
When the Exim Policy was announced some more major steps were announced. Status holders, SEZ units and exporters exporting to Latin American countries were given extended period for realisation of export proceeds. Status holders were also allowed to retain 100 per cent foreign exchange in their EEFC accounts.
The Reserve bank of India has now gone ahead to liberalise further. External commercial borrowings can now be raised up to $50 million by any legal entity registered under the Company's Act, Societies Registration Act, Co-operative Societies Act including proprietorship/partnership concerns. But, the dispensation is not available top individuals, trusts and non-profit making organisations.
The limit for remitting out of India, assets of foreign nationals and non-resident Indians has been raised from Rs 20 lakh each year to $100,000. They can also remit the legacies or inheritances up to $100,000.
Corporates can now pre-pay external commercial borrowing up to $100,000 under automatic route and the Reserve Bank of India has promised expeditious consideration of requests for prepayments above $100,000.
Banks have been asked not to send duplicate GR forms to the RBI after realisation of export proceeds. Banks can retain them and only report to the RBI.
Now, banks have been allowed to grant foreign currency loans to their customers in India against the security of FCNR(B) account deposits.
The RBI has also clarified that for remittance of consultancy fees no prior approval is required if the remittances are to be made from EEFC account.
In spite of all these relaxations, the rupee continues to appreciate against the US dollar, the main currency for Indian exporters and importers.
Imports continue to remain depressed due to many non-tariff barriers, too many anti-dumping and safeguard actions, depressed industrial activity and poor investment climate.
At the present rate, it might be difficult to sustain the present encouraging growth rate in exports or even the revenue from customs duty.
The government should relax the non-tariff barriers. The welcome initiatives of the RBI are inadequate to generate sustained demand for the dollar.
