The ministry for non-resident Indian affairs has sought the easing of restrictions on arbitrage opportunities for NRIs.
The new ministry under Jagdish Tytler has also decided to pitch in with the finance ministry to enlarge the window of opportunities for NRIs and People of Indian Origin in the domestic stock market. The ministry has said NRIs\PIOs too should be allowed to repatriate profits abroad on the same terms as foreign institutional investors.
Over the past couple of years, the finance ministry and Reserve Bank of India have reduced interest rates on the non-resident external (rupee) deposits on three occasions, to align them with the London inter-bank offer rate and remove arbitrage opportunities. It was found that NRIs were parking large sums of money in these accounts.
As on December, 31, 2003, the total NRI short and long-term deposits was about $30 billion, which is almost 27 per cent of the country's external debt. The government's concerns stem from the fact that this sum can easily be withdrawn from the country if the rate of interest overseas hardens, resulting in an erosion in foreign exchange reserves.
According to sources in the ministry, NRIs want the RBI to retain the arbitrage opportunities by maintaining at least a 1.5 per cent difference between the rate of interest on these deposits and the Libor.
The sources said NRI groups were also lobbying for easier repatriation norms under the new dispensation. However, the Prime Minister's Office has shot it down.
Following the stocks scam of 2001, the Centre had blocked the entry of overseas corporate bodies in the stock market. OCBs were the favourite investment avenue for NRIs\PIOs, which allowed them to buy and sell shares, but with extremely low levels of capital investment.
The Centre found that most of the aberrations in the stock market could be traced to these OCBs.
