RBI liberalizes overseas investment norms! Isn’t that great!

Liberalization, economic advancement, accelerating GDP, expanding exports of services and the rupee becoming stronger – this changing scenario has lead the Reserve Bank of India (RBI) to take action and how! The inflow of Foreign Direct Investment (FDI) and expectations of large dollar remittances have impelled the RBI to set the Indian dream free, and Indian firms have gained more flexibility in investments.

The changing face of the RBI is a welcome prospect for Indian businesses. The limit for remittances without prior approval has been hiked from $100,000 to $200,000 per fiscal year. Now Indian companies can invest in wholly owned subsidiaries, partnerships or joint ventures up to 400% of the net worth of the company.

This was followed by the ceiling for mutual funds investments overseas rising to $500,000. Another positive change was the relaxation of the rule of reciprocal share, which enjoined an Indian company investing overseas to allow similar investment in its own company.

Varied impact

With mixed responses greeting these liberalization transformations there is confusion whether the changes signify optimism towards India or if a guarded pessimism is indicated.

While the center clarifies that to liberalize the economy there is a need to devise more channels for forex outflow, money keeps pouring into the economy. Efforts have begun to create a demand for dollars, to counteract the FDIs coming in. The rupee – on a decade high and gaining ground every day – needs no protection, but with inflation becoming a concern the RBI is going all out to control the money supply.

The relaxation of certain norms and removal of many restrictions sees the RBI enjoying fuller capital account convertibility, that is, the freedom to convert domestic assets into foreign assets to widen the asset base. This would encourage higher capital outflow that is a requirement for holding domestic savings.

How personal spending is affected

With the limit on investment in immovable property or any asset overseas at $200,000 now, the global Indian has more options. For the individual, the lifting of restrictions and introduction of various relaxations has made overseas travel simpler and more viable. With no liquidity crunch the world is the Indian traveler’s oyster. With more markets opening up, we can also look forward to better goods and quality services.

These measures are just the seed of huge changes expected in the Indian economy. While most people are optimistic about the situation, some are guarded. What is your take on the Indian economy on macro and micro levels? Does the country’s financial future look upbeat, or is there still time to open the champagne?