Why India is taking measures to protect the Indian rupee

India reveals new measures to patch up balance of payments

The Indian government reveals additional measures to patch up balance of payments

India has been facing problems with its balance of payments, and the government has announced several measures over the past two months to amend these problems. The measures as a whole feel more like a patch rather than a long-term solution to a problem that has been hurting and will likely continue to hurt the Indian rupee.

India ETFs 2013-08-19Enlarge Graph

What do these measures look like?

Some of the measures include:

  • Limiting overseas direct investment
  • Limiting remittances made by residents
  • Additional gold import restrictions, now prohibiting importing of gold coins and medallions

India cut overseas direct investments to 100% of an Indian party’s net worth—which is one-fourth of the previous 400% limit. India has also limited remittances made by resident individuals to $75,000 USD—which is less than half of the previous $200,000 USD allowed per year.

It’s important to note, though, that these are the limits for automatic approvals and that investors can take “genuine requirements” that exceed the new limits under the RBI approval process.

Aside from the gold restrictions previously revealed, the government has now prohibited importing gold coins and medallions. The gold restrictions aim at stopping the depreciation of the rupee. Read about the gold restrictions in Will India’s gold restriction affect credit in India? — Part 1: Why is gold so important in India?

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