Rumours of capital control false: RBI

There were some fears in the market that the RBI may impose capital control measures on foreign institutional investors (FII). Sources in the Reserve Bank have dismissed these rumours, reports CNBC-TV18’s Latha Venkatesh.

Also read: RBI likely sold dollars via state-run banks, dealers say Market people who handle a lot of money said that this fear was not there among the well informed FII investors whom they service. It looks like there was one kind of selling. There was MSCI which had removed Axis Bank plus some poor results and for a whole host of reasons several stocks fell. Then stop losses got triggered and there was more selling. There was a very good bear trap laid, technically speaking from Monday through Wednesday when the bears had allowed 5700 to be taken almost effortlessly in the face of very poor fundamental data. Both Index of Industrial Production (IIP) and inflation were very bad data. In the face of it the market was run up with some élan over 5700. So, much of Puts had accumulated over there that the bulls straightaway walked into that trap. There are a whole host of reasons for the fall in the market. Traders say that the Reserve Bank of India's (RBI) capital controls and fears that it would be extended were a post facto rationalisation provided by the market that the really knowledgeable FIIs never feared that this would happen. In any case it is very important to take onboard what the RBI is saying. Their point is those who could spend USD 200,000 outside India every year can now only spend USD 75,000. The point is that this USD 200,000 extension itself was given only in 2007 when there was such a huge and unmanageable inflow of FII money. They wanted some outlet of the dollars, otherwise the rupee could have appreciate unmanageably. So, it is only that last bit of liberalised remittance that they have taken off and no other capital control is contemplated at all even for the corporates. It is not as if they have controlled The Overseas Direct Investments (ODI) vehicles to 100 percent of net worth. 100 percent of their net worth expenditure can be automatic. The rest will have to be through the approval route. It does not mean you cannot get 400 percent approvals. So even there it is not really an imposition of capital control as much as just pushing it through the approval route. For FIIs the RBI source pointed out that throughout the history of Indian economic reform, even through the Asian crisis and the Lehman crisis not once was it contemplated that an FII investor cannot take back his principal, dividend or interest. For Foreign Direct Investment (FDI) under the Foreign Exchange Management Act (FEMA) itself it will be illegal to stop any such repatriation.