The move is seen as an effort to check sustained rise in the value of Rupee against the US dollar.
The Reserve Bank of India (RBI) said in a statement on Tuesday evening that Indian companies will now be allowed to invest up to 400 per cent of their net worth in overseas joint ventures and wholly-owned subsidiaries.
The decision will allow Indian companies' plans for overseas acquisitions and comes at a time when acquisitions by Indian entities are at all-time high. As against 4.4 billion US dollars worth overseas acquisitions in 2005, the figure was 24.46 billion dollars in 2006 and it has already reached 21 billion dollars so far this year.
The ceiling for overseas investments by mutual funds registered with Security Exchange Board of India (SEBI) has been raised from four billion dollars to five billion dollars, it said.
Banking experts said the RBI would encourage mutual funds to invest abroad. Several mutual funds had recently raised funds from the public for investment abroad.
The RBI has also permitted resident Indians to transfer up to 200,000 US dollars a year abroad without its approval, raising the existing limit of 100,000 US dollars. This means that Indians can acquire immovable properties, make investments in financial instruments, purchase any other asset abroad without prior clearance of the central bank and spend more while travelling overseas.
The limit for portfolio investments abroad by listed Indian companies has been hiked from existing 35 per cent of the net worth to 50 per cent, the statement said.
Also, the requirement of ten per cent reciprocal shareholding in listed Indian companies by foreign companies for portfolio investment outside India by listed Indian companies has been dispensed with, it added.
The RBI has been battling to contain the impact of increasing foreign institutional finance inflow in recent weeks, which helped Rupee touching a nine-year high against the US dollar, hurting exporters and greenback earners.
The RBI moves will make it easier to convert the Indian Rupee into foreign currency, financial sector analysts said.
- By Pallab Bhattacharya
The Daily Star
Publication Date: 27-09-2007