Under the new policy, Indian individuals can send just $75,000 out of the country annually, down from $200,000 – making it tougher to pay children’s overseas university fees, for example.
Companies can invest abroad only 100 percent of their net worth, down from 400 percent — though the central bank says firms can ship out more money if they give authorities a good reason for doing so.
“While the authorities aim to reduce foreign-exchange volatility, we fear they may end up sending a panic signal,” Nomura economist Sonal Varma said.
There have been no signs so far of domestic capital flight but analysts say the controls may have been tightened to avert one in the face of India’s troubles.
The economy expanded last year at a decade-low of five percent and indicators this year have been grim with economists warning about “stagflation” – a combination of high inflation and low growth.
With an election to be held by May 2014 and pro-market reforms divisive, there is no way the Congress government can undertake root-and-branch reforms needed to put the economy back on track, economists say.
“There is a complete lack of faith in the markets” about India’s outlook, said Param Sarma, chief executive at consultancy firm NSP Forex.
“We are slowly, but surely, likely to enter a phase of a crisis,” he said.
