Millennium Post

RBI doubles Indians’ foreign investment cap to $2.5 lakh

"On a review of the external sector outlook and as a further exercise in macro-prudential management, it has been decided to enhance the limit under the Liberalised Remittance Scheme (LRS) to $2,50,000 per person per year," the RBI said in its Bi-Monthly Monetary Policy Statement.

In view of the worsening current account deficit and a volatile rupee, the RBI had in August 2013 reduced the ceiling from $200,000 to $75,000 per person in a year under the LRS. Consequently, with improvement in forex situation, it was raised to $1,25,000 in June 2014.

The LRS allows residents to acquire and hold shares, debt instruments or other assets outside India without prior approval of the RBI. In mid-January, India's foreign exchange reserves touched a new life-time high at $322.135 billion, driven by higher foreign fund inflows and lower forex outgo on the back of a massive fall in global crude prices.

Foreign funds had been pumping more and more dollars into Indian equities ever since the new government assumed charge in May. In 2014, FIIs pumped in USD 16.15 billion into Indian equities while they have exhausted the cap of $30 billion in Government securities.

They have parked $32.5 billion in corporate bonds, which is 64 per cent of their cap of $51 billion. Foreign direct investments (FDI) in the country rose by 22 per cent to $18.88 billion during the eight months of the current fiscal. The amount was $15.45 billion in the April-November period of 2013-14.

India's current account deficit narrowed to 1.9 per cent of GDP in the first half of current fiscal from 3.1 per cent of GDP in in the corresponding period of 2013-14.

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