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India Restricts Foreign Exchange To Halt Rupee Slide
BBC NEWS, BUSINESS
August 15, 2013: India's central bank has put further restrictions on the amount of money that companies and individuals can send out of the country. It hopes to ease the pressure on the rupee, which has lost about 15% of its value against the dollar so far this year. The currency has been hit by a weaker Indian economy and investor fears of more money leaving the country. This has led to higher prices for key items such as food and fuel.
Under the new rules, the limit for overseas investments by Indian companies has been cut to 100% of a company's net worth, from 400% previously. However, state oil companies were granted an exemption, while others can apply to exceed the limit if they can show a genuine requirement.
The amount of money that individuals can send overseas was cut to $75,000 each financial year from $200,000.
The Reserve Bank of India (RBI) has also banned imports of gold coins and bars, which constituted about a third of total bullion demand in India last year. Local buyers will also have to pay cash for their gold.
Free fall
India was recording annual growth of 9% until two years ago, but in recent months, it has seen a sharp decline, blamed on a slowdown in its manufacturing and services sectors. The country is suffering from a persistent current account deficit - the widest measure of trade that includes investment flows.
Finance Minister P Chidambaram has committed to cutting the current account deficit to $70bn, or 3.8% of GDP. "I make a commitment on the current account deficit on behalf of the government. We will leave no stone unturned to contain the current account deficit at about $70bn," Mr Chidambaram told the Indian parliament on Wednesday. "We cannot allow the rupee to go into a free fall." The government fears a weak rupee will make the current account deficit worse, hinder investment, and further hit economic growth.
India is also one of a number of countries suffering from speculation that the US Federal Reserve will start scaling back its stimulus program.
Earlier in August the RBI said it would auction 220bn rupees ($3.6bn; £2.3bn) of government cash management bills every Monday. It did not say how many weeks the sale would go on.
