Sinha to further liberalise capital account

Union Finance Minister Yashwant Sinha told Parliament on Thursday that capital account convertibility has been on the Centre’s agenda for quite some time.

Sinha said that in view of the many disturbances that have taken place in international capital markets in recent years, he proposes to continue with the policy of liberalisation with caution.

Accordingly, he proposed to take the following steps to further liberalise the capital account:

1.There will be full convertibility of deposit schemes for Non Resident Indians. The existing Foreign Currency Non-Resident (FCNR(B)) scheme and the Non-Resident External rupee (NRE) scheme will continue to be repatriable.

2.The schemes which do not offer full convertibility to NRIs will be discontinued from 1 April 2002. The existing balances in the non-resident (non-repatriable) rupee accounts will be allowed to be credited on maturity to the convertible NRE account.

3. NRIs will be free to repatriate in foreign currency their current earnings in India such as rent, dividend, pension, interest and the like based on appropriate certification.

4. Indian companies wishing to invest abroad may now invest up to US $100 million on an annual basis through the automatic route, up from the existing limit of US $50 million.

5.Indian companies making overseas investment in joint ventures abroad by market purchases may now do so without prior approval up to 50% of their net worth, up from the current limit of 25%.

6.Corporates with proven track record will be allowed to contribute funds from their foreign exchange earnings for setting up chairs in educational institutions abroad and for other welfare measures, likely to benefit the community abroad, on a case-by-case basis by the RBI.

7.Indian mutual funds will now be allowed to invest in rated securities in countries with fully convertible currencies, within the existing limits. Earlier, such investment was only permitted in ADR/GDRs issued by Indian companies in overseas markets.

8. Pre-payment of ECBs is permissible to the extent of balances available in EEFC accounts, which are currently restricted to 50% of export proceeds. To enable ECB holders to benefit from lower interest rates, utilisation of higher amounts from export proceeds will be considered by RBI.

9.With a view to further liberalising the capital account transactions it is proposed to put the Foreign Currency Convertible Bond (FCCB) scheme under the automatic route upto US $50 million.

The Reserve Bank of India (RBI) will be issuing guidelines for each of these measures separately.

While liberalising the capital account, Sinha said it is necessary to exercise careful vigilance in curbing illegal capital flows. Recent evidence indicates transfer of large sums of money through various channels in support of terrorist activities in the country. The government, therefore, proposes to bring suitable legislation during the current session of Parliament to empower the enforcement agencies to arrest and prosecute the hawala operators/money launderers suspected to be engaged in financial transactions linked with terrorist activities.

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