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Raising overseas investment cap depends on current account: RBI

“The issue is that we are a capital scarce country and our current account pressures are increasing and there are demands on the forex reserves for how much further liberalisation we need to do and that is something we need to keep in view,” RBI deputy governor HR Khan said

Mumbai: The Reserve Bank of India (RBI) on Friday said an immediate hike in the cap on overseas investments by corporates depends on improvement in current account, reports PTI.

“Any further liberalisation (of overseas investments by corporates) can take place perhaps after current account condition improves,” RBI deputy governor HR Khan told a meet on Outward FDI here last evening.

The current ceiling on overseas investment by companies and individuals is 200% of their networth. Enhancing the limit will enable domestic companies to go in for larger acquisitions abroad.

Corporates, on the back of a firm $300 billion forex reserves, have been lobbying for a higher ceiling on their foreign investment, to the tune of 250% of their net worth.

“The issue is that we are a capital scarce country and our current account pressures are increasing and there are demands on the forex reserves for how much further liberalisation we need to do and that is something we need to keep in view,” Mr Khan said.

The current account deficit is projected to widen to 3.6% of the gross domestic product (GDP) from 2.7% last fiscal, according to the latest estimate by the Prime Minister’s Economic Advisory Council, which also projected that trade deficit is set to shoot up to $175 billion this fiscal on the back slackening exports and increasing in-bound shipments.

Current account deficit reflects the inflow and the outflow of foreign currency. It occurs when a country’s total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers.

Pointing out that money flow, both inward and outward, has to be balanced, the deputy governor said as of now the inflows are not commensurate with outflows.

“If money does not come back how much more can you liberalise (for outward flow)?” Mr Khan asked and pointed out that the country is facing a current account problem along with some emerging vulnerabilities from the external sector.

Outbound merchandise shipments have been petering out of late on the back of the sovereign debt crisis in the Eurozone as well as the yet-to-be-revived US economy.

On Thursday, the commerce ministry data showed that January exports grew a paltry 10.1% to $25.4 billion, while imports grew at a faster rate of 20.25% to $40.1 billion, leaving a trade deficit of $14.76 billion in the month.

From a peak of 82% last July, exports slipped to 44.25% in August, 36.36% in September and to a poor 10.8% in October.

For the cumulative April-January period, exports aggregated $242.79 billion, showing a healthy growth of 23.47%. But imports during the same period stood at $391.45 billion, an increase of 29.4%, widening the trade gap aggregating to $148.66 billion.

On the liquidity condition, he said, more open market operations are not ruled, saying “all options are open”.

When specifically asked whether there can be some measures to ease liquidity even before the scheduled 15th March mid-quarter review, Mr Khan just repeated “all options are open”.

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