Finance Ministry imposes Capital Controls

Finance Ministry of India imposed some capital controls to control the surging dollar inflows and prevent further rupee appreciation. This time also they have imposed controls on External Commercial Borrowings (ECB).

Capital Controls could be of various types and so far policy makers have been targeting External Commercial Borrowings. These are loans Indian companies raise in Dollars/Pounds etc for financing their expenditure. Earlier, a control was imposed via which companies could not raise loans by offering interest rates higher than stipulated.

This time they have categorised ECBs:

  • Any company raising External Commercial Borrowings of more than USD 20 million would be permitted to use the same only for financing permissible foreign expenditure i.e. imports, acquisitions abroad. This implies that dollars raised via ECBs will have to be spent overseas and cannot be used to finance rupee expenditure.
  • Companies raising ECB less than USD 20 million for financing expenditure in India, would require permission from RBI for doing the same.

So some development on rupee appreciation. Let us see the impact.

Update: Ajay Shah feels the capital controls would not be effective.

One Response to “Finance Ministry imposes Capital Controls”

  1. .:Finance News Online:. » Blog Archive » Finance Ministry imposes Capital Controls Says:

    […] worddocdooley wrote an interesting post today.Have a look for your self, Here’s an excerpt, read the full story at the blogFinance Ministry of India imposed some capital controls to control the surging dollar inflows and prevent further rupee appreciation. This time also they have imposed controls on External Commercial Borrowings (ECB). … […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: