MBA Aspirants are expected to know on what is new in economy and what is that impacting it? Today, you will read on How will the listing of Indian firms in overseas markets support Indian rupee?
Recently, the Indian government issued a new regulation, allowing unlisted Indian firms to be listed on foreign markets without having to trade publicly on domestic exchanges like the National Stock Exchange of India and the Bombay Stock Exchange.
According to the government, this move will help firms raise capital abroad to support the rupee. Money that is raised in foreign markets can be used for retiring foreign debt or other purposes such as acquisitions.
If funds that are raised in foreign markets are not used abroad, they would have to be remitted back to India within 15 days. And the money will be parked in banks.
The money that enters the Indian market will then fund India’s widening current account deficit, which stands at Rs 4,325 billion (US$70 billion). India has a wide current account deficit because it is spending more on foreign trade than it is earning. So, funds from Indian firms listed overseas will help to reduce the current account deficit.
And this way, the Indian currency can be strengthened. To prevent illegal funds from entering the country and to prevent cases of money laundering and terrorism financing, companies will only be allowed to get listed on markets that are compliant with the International Organisation of Securities Commissions and the Financial Action Task Force.
So, this way, the government can be certain that incoming funds being channelled to revive the Indian currency are clean. Earlier, Indian companies were not allowed to be listed on foreign markets without first being listed on Indian markets.
Now, Indian companies can skip the step of getting listed on Indian markets and directly be listed on foreign markets and exchanges, such as NASDAQ, Singapore Exchange, London Stock Exchange and New York Stock Exchange. It is good that the government is trying to liberalise the rules rather than restricting the amount of foreign currency that can be sent out of the country.
Since the last few months, the Indian government has been focusing its efforts on increasing the foreign direct investments (FDIs). It has raised FDI caps in several sectors, encouraging more investors to park their funds in India.
The Indian government has pinned all its hopes on FDIs because only through investments can the Indian economy bounce back on its feet. Through investments, the number of jobs in India will increase and the productivity will be enhanced. This will in turn increase the export value and boost the growth of the Indian economy.
Studies have shown that investors’ confidence in the Indian market has deteriorated over time because of the unfavourable government regulations, which impede the establishment and growth of industries. However, this will change once money starts pouring into the Indian economy in the form of remittances.
The Reserve Bank of India has tried numerous ways to enhance economic growth but has not reaped the desired results. The Indian government will monitor the outcome of this new regulation for the next two years, and we will get to know how effective the new regulation is in due course.