India’s new limitations on capital outflows are likely to the overseas drive and investment plans by India Inc at a time when many companies are exploring markets abroad to come out of the domestic economic slowdown.
In a latest move to control dollar outflows and stop the rupee’s slide, the Reserve Bank of India (RBI) on Wednesday cut the overseas investment limit for companies to 100 percent of their net worth from 400 percent, and further restricted gold imports.
Any overseas investment of more than 100 percent of a company’s value would necessitate central bank sanction. However, large state companies were excused from the rules, which were immediately implemented.
The rupee fell to a record low on Monday on fears that the recently implemented limitations, formulated by policymakers struggling to protect the currency in the downfall and a toughening global investment, could discomfort foreign investors.
Bankers and companies condemned the restrictions on firms, which looking to spread out beyond India, hitting demand for products ranging from cars to steel.
Faced with a balance of payment crisis, India forced open the economy in 1991.
Analystssaid the restrictions would damp India’s global ambitions and hoped the measures would soon be revoked.
Backed by cheap loans, some of the companies like Apollo Tyres have purchased companies much bigger than themselves in the recent past.
Some pharmaceuticals and auto parts makers are hunting for overseas targets much bigger than themselves join in the list of global players.
The move could lead to a fall in India mergers and acquisitions deal volume this year as compared to 2012.
