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Investors bail out as India’s rupee crisis deepens

As the rupee’s woes have deepened, authorities have responded with a clutch of measures to try to stem its decline and avert a balance-of-payments crisis.

India has painful memories of its 1991 balance of payments crisis when it failed to attract enough foreign currency and was forced to fly 47 tonnes of gold as collateral for an International Monetary Fund loan in what was seen as a national humiliation.

Indian Prime Minister Manmohan Singh, who was finance minister at the time, was moved Saturday to rule out a repeat, saying: “There is no question of going back to the 1991 crisis.”

In the past few weeks, Indian policymakers have hiked short-term interest rates, announced plans to allow state firms to raise foreign funds abroad and curbed gold imports.

They have also threatened to imposed higher duties on imported electronic appliances such as fridges, which are made locally.

But it is their most recent step – stealthily announced late Wednesday on the eve of a national holiday – that has fanned the deepest consternation.

The central bank sharply tightened controls on the amount of money firms and individuals can send abroad.

The move looked to observers like a disturbing throwback to the days before India unleashed its economic liberalisation drive in the early 1990s when Indians’ access to foreign exchange was strictly limited.

Confederation of Indian Industry president Kris Gopalakrishnan criticised the move as “retrograde”.

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While the capital controls only apply to local individuals and firms, the restrictions may raise worries among overseas investors that they could be extended to foreign companies operating in India, analysts say.

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