India seeks to prop up rupee by boosting capital inflows

India on Tuesday said it was relaxing foreign investment rules in a move to bring in more capital to support the battered rupee.

The government said residents of Gulf nations and all European Union countries can invest directly in stock markets. Individual overseas investors will also be allowed to plow up to $1 billion into the debt market.

The relaxation in overseas investment norms for individual investors is aimed at "enhancing the flow of foreign capital into India," the finance ministry said in a statement.

The move to relax the investment norms comes at a time when the government and the central bank are seeking to arrest the slide in the rupee.

The rupee touched a record low of 56.38 to a dollar last week, mainly due to the withdrawal of billions of rupees in funds by foreign institutional investors. It was trading at 55.67 rupees to the dollar late on Tuesday.

Also, overseas individual investors can now open rupee accounts with Indian banks and keep the money there for unspecified periods, the ministry said.

However, analysts say while such measures may help the currency temporarily, they are not a long-term solution to the rupee's weakness which reflects concern over slowing economic growth and gaping fiscal and trade deficits.

Analysts say the government needs to press ahead with long-delayed reforms such as further opening up the retail and aviation sectors to foreign investment.

Prime Minister Manmohan Singh's second term in office has been tainted by a series of policy U-turns and corruption scandals and his once ambitious reform agenda has stalled amid coalition infighting.

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