India plunges into Mercantilist moves as currency slips

NEW DELHI, August 14, 2013 (AFP) – India slapped new controls Wednesday on foreign exchange outflows as it struggled to narrow a record current account deficit and arrest the fall of the rupee. The central bank “has to cater to both currency and inflation risks”, which means monetary easing to kickstart growth “is off the table for now”, said HSBC economist Leif Eskesen.

Politically sensitive food prices climbed in July by 9.74 percent while the cost of onions — a staple in every Indian diet — soared by 145 percent on an annual basis.

The Congress-led government has been desperate to tame inflation, especially of food, and revive the economy, fearing a voter backlash in elections due by May 2014.

India’s troubles have been exacerbated by signals the US could soon slow its stimulus drive that prompted big investment flows to emerging markets, and homegrown graft scandals that have alarmed foreign investors. The central bank announced that Indian firms can only invest 100 percent of their net worth abroad, down from an earlier 400 percent.

Resident Indians now can only send out of the country $75,000 each year — down from $200,000 annually, the bank said on its website, and