The Hindu : Full convertibility for NRI deposit schemes

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Friday, Mar 01, 2002

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Full convertibility for NRI deposit schemes

By Our Special Correspondent

NEW DELHI FEB. 28. In a significant move pushing forward the capital account convertibility agenda, the Union Finance Minister, Yashwant Sinha, as part of his budget proposals announced a package for non-resident Indians including full convertibility in case of deposit schemes for them besides the freedom to repatriate in foreign currency their certain type of current earnings in India.

However this liberalisation is being tapered with caution to curb illegal capital flows. Since recent evidence indicated transfer of large sums of money through various channels to fund terrorism in the country, a legislation is proposed to be introduced during the current session of Parliament to empower the enforcement agencies to arrest and prosecute hawala operators and money launderers suspected to be engaged in financial transactions linked with terrorists activities.

Indicating that the Reserve Bank of India (RBI) would in due course separately issue guidelines to make the package operational, Mr. Sinha said that the existing Foreign Currency Non-Resident (FCNR(B)) Scheme and the Non-Resident External Rupee (NRE) Scheme will continue to be repatriable.

However those schemes which do not allow full convertibility to NRIs will be discontinued from the next financial year (April 1, 2002). Further the existing balances in the non-resident (non-patriable) rupee accounts will be allowed to be credited to the convertible NRE account on maturity.

The current earnings in India which the NRIs would be free to repatriate in foreign currency are rent, dividend, pension, interest and the like on the basis of appropriate certification, the Finance Minister said.

Indian companies wishing to invest abroad, Mr. Sinha said, may now invest up to $100 million on an annual basis through the automatic route. The existing ceiling of $50 million was being doubled. Similarly the limit in relation to such companies making investments in joint ventures abroad through market purchases without prior Government permission would be from 25 per cent to 50 per cent of their net worth.

Also Indian mutual funds will be allowed to invest in rated securities in countries with fully convertible currencies but within the existing limits. Earlier such investment was permitted only in ADR/GDR issue by Indian companies in overseas market. Corporates with proven track record too would be permitted by RBI to contribute form the FE earnings for setting up chairs in educational institutions abroad and for other welfare measures likely to benefit the community abroad but on a case-by-case basis.

The RBI would also consider requests for utilisation of higher amounts from export proceeds to enable ECB holders to benefit from lower interest rates. Prepayment of ECBs is permissible to the extent of balances available in EEFC accounts which are currently restricted to 50 per cent of export proceeds.

In order to further liberalise the capital account transactions, the Finance Minister has proposed to put the Foreign Currency Convertible Bond (FCCB) scheme under automatic route up to $50 million.

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