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Bloomberg:India Fighting Worst Crisis Since ’91 Seeks to Buoy Rupee

August 15, 2013

The rupee's decline is a reminder of the crisis in the 1990s when the
widening deficits in the budget and current account pushed the
currency down 37 percent between 1991 and 1992.
India increased efforts to stem the rupee's plunge and stop capital
outflows that are pushing the economy toward its biggest crisis in
more than two decades.

The Reserve Bank of India, whose Governor Duvvuri Subbarao steps down
next month, cut the amount local companies can invest overseas without
seeking approval to 100 percent of their net worth, from 400 percent,
according to a statement late yesterday. "I don't think this fixes
India's problem, at best it restricts about $5 billion of flows
annually, which doesn't make a dent," Bhanu Baweja, the global head of
emerging market cross asset strategy at UBS AG, said in a phone
interview from London yesterday. "The minute you restrict outflows,
people will start legitimately speaking in terms of capital controls,
although these are only on locals and not on foreign investors."
Cash Reserves

Central bankers also exempted lenders from cash reserve rules for
certain foreign-currency deposits yesterday. Banks accepting non-rupee
deposits after Aug. 24 from Indians living abroad need no longer keep
4 percent in cash and invest 23 percent in government-approved
securities, the RBI said.

Nomura Holdings Inc. estimated that private remittances and outward
direct investment abroad totaled $15.9 billion in the year ended March
31, citing central bank data.

"Indian companies' outward foreign direct investment has been growing
in recent years for various reasons such as pursuing growth markets,
technology, natural resources, and these could be adversely hit,"
Sonal Varma, an economist at Nomura in Mumbai, wrote in a report
yesterday. "While the authorities aim to reduce foreign-exchange
volatility, we fear that they may end up sending a panic signal."

Ref http://mobile.bloomberg.com/news/2013-08-14/india-restricts-foreign-exchange-outflows.html

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