RBI targets wealthy, corporates to rein in rupee slide

By Latha Venkatesh

The declining rupee and efforts to control it is now beginning to touch the Indian upper middleclass and all of corporate India. Companies until now could spend up to 400 percent of their networth abroad to acquire or expand. The limit is now brought down to 100 percent of net worth. Indian could spend up to 2,00,000 dollars a year to finance their childrens education or for any indulgence or even investment. Now they can spend on 75,000 dollars a year and they can’t remit dollars to buy land aboard.

How much will this save the country? On an average about 15-20 billion is spent by Indian companies for expansions abroad. Now perhaps that falls to one-fourth. Resident Indians spent around 1.2-1.5 billion dollars last year. Now that amount may fall to under one billion. Will this make dollar cheaper as demand for it goes down. Not much say dealers. Dollar may start lower on Friday but much will depend on how dollar behaves against other emerging market currencies. In the near term however, what this means is that RBI and government are serious about curbing the price of dollars. They won’t just stick to interest rate methods. They will stop you and me and corporate India from spending dollars. This psyche may put a roof to the price of dollars.