But if you remove the curbs, the fear is that the capital will flee the country.

Now, to your point, let me talk about the second function of money, which is the store of value. Suppose there is an industrialist with Rs 100 crores in wealth. Every year, he sees that wealth depreciating by 5%-10%, as the rupee continues to depreciate. If he’s a wise businessman, he would keep his money abroad. The government of India and the central bank play key roles here. The central bank is essentially the cashier to the exchequer, and the government is the issuer of rupee notes. It is the government’s duty to maintain the value of the rupee. If the rupee depreciates, it is a failure of the government. When the government fails in its duty, businessmen will naturally look to send their money abroad. Stabilising the rupee and ensuring an annual appreciation by 2% would attract significant capital inflows.

But India is a capital-deficit country, and our biggest challenge is import-dependency on crude, among others. While you can argue that the government has failed to protect the value of the rupee, isn’t that beyond the government’s control?

I agree if there isn’t enough oil in our land or sea, one cannot do anything about it. However, statistically, China imports far more crude oil and gold than India does. How has China managed thus far? It’s a matter of confidence in one’s economy and having a positive mindset. If and when the US dollar comes under attack, there is little doubt that the American government, banks, financial institutions, and corporations will work together to support it. Businesspeople in the U.S. are partners with the government. They collaborate in a way that benefits both. Can you ever say that businessmen in India are partners with the government? Here, the government views businessmen through a lens of suspicion. If I am running a business, I must constantly satisfy regulators.

Our mindset was understandable in the 1950s, 60s, and 70s, but times have changed. Liberalisation began in 1991 — more than 30 years ago — and yet, despite $650 billion in forex reserves today, the regulatory attitude has not evolved. How many countries in the world have more forex reserves than us? Very few.

But the interesting thing is that even with $650 billion in reserves, the rupee is at 85 to the dollar

The reason lies in the overly conservative and control-focused approach of the central bank and the government. The rupee is not fulfilling its functions as a medium of exchange or as a store of value. A rupee note is essentially an IOU, whether it’s a note of Rs 10 or Rs 1,000. The currency has the central bank governor sign on it with the statement: "I promise to pay the bearer the sum..."

This means that the government is the borrower, and the holder of the rupee is the lender. However, a rupee note has no intrinsic value. If you are given a gold coin, it has intrinsic value. Right? But a rupee note does not. If someone issued you a cheque for Rs 1 lakh but promised less value over time, would you accept it? That's what rupee depreciation represents today.

But that’s precisely what’s happening today. Why would any sensible businessman keep his wealth at home under such circumstances? It is the government’s duty to ensure that if it issues a cheque — or, in this case, an IOU like the rupee — it honours the full value when it’s due. By signing that IOU, the government essentially borrows from you. The government must ensure the rupee retains its value; failing this, businesses naturally seek safer havens abroad. If the government fails in this fundamental obligation, it erodes trust and incentivises businesses to look for safer havens for their money abroad. That’s the core of the problem.

The bureaucratic setup in the country understands all of this but operates with a “control” mindset. Everything in the country is permission-driven. We are supposed to be a free country. Why should I need permission from anyone if it’s my money, and I’ve paid my taxes on it? No one should have the right to dictate what I do with it. Hence, FEMA should be abolished, and the respective managers should be transferred to other departments of the central bank.

That will never become a reality, no matter which government is at the Centre

Consider 1991. Parliament was resistant to economic reforms, yet by May 1992, the Gold Control Act was repealed, and the economy was liberalised. Did we benefit or lose?

If we continue to liberalise, there are countless Indians living abroad — in Hong Kong, Dubai, the US, and other places — who earn a lot and want to repatriate money back but want to avoid the headache of complex regulations and scrutiny. When I travel abroad and sit down for dinner, they often invite four or five other friends to join. Around the table, you’ll find people who own assets worth more than $100 million. India is the only country among the top 20 economies that offers both political stability and economic stability. NRIs want to invest in India freely, but banking and tax regulations act as deal breakers.

The sad part is that we’ve become so accustomed to a control mechanism that even businessmen have been conditioned to accept it as normal. For a regulator, their very existence depends on maintaining control. But I firmly believe that if a businessman is not doing anything wrong, they should be free to do whatever they want.

Wasn’t the GIFT City supposed to be a panacea for all the ills?

When GIFT City was established, the government declared it free from FEMA restrictions. However, ED summons to investors soon after undermined confidence, discouraging both domestic and foreign investment.

The reason? The ED wanted to assert its authority over GIFT City.

When companies receive such notices shortly after setting up operations, it undermines confidence and discourages investment. What does this lead to? A lack of trust and interest from foreign investors.

This highlights a larger issue — our mindset.

Whichever government is in power, there is this belief that once you are an IAS or IRS officer, you are not accountable to anyone. This lack of accountability fosters an environment where regulatory agencies act independently, often to assert their authority.

The central bank, too, wants to impose its authority over GIFT City. GIFT City was envisioned as a hub for two-way investment. However, recently, a prominent industrialist set up an investment entity abroad in Singapore. Why? Because he felt that staying within India’s geographical boundaries would always keep him under the regulatory glare.

To make matters worse, the central bank too has control over GIFT City. This defeats the purpose of creating GIFT City as a liberalised, investor-friendly zone, discouraging both domestic and foreign investors from taking advantage of its potential.

In fact, there is a Sanskrit word, Prabhutva, which translates to domination or power in English. It reflects an attitude of “This is my power. Who can challenge my power?” With such a mindset, how can liberalisation be achieved?

When the Liberalised Remittance Scheme (LRS) was first introduced, it was seen as a step toward scrapping FEMA. Former central bank Governor Y.V. Reddy, in his book Advice and Dissent: My Life in Public Service, described it as a “no questions asked window.” However, 20 years later, we have added numerous restrictions to LRS, including a 20% TDS!

Today, if you become wealthy, you are constantly under the lens of the income tax authorities. You are perpetually scrutinised, and, God forbids, if you ever have to deal with an I-T officer — you’re forced to respond even to their illogical questions. Sadly, the control raj continues to thrive in this country.

Coming back to the question isn’t the ODI outflow a concern, especially in the absence of a robust private investment cycle back home?

My guess is that the outflows will account for less than 5% of the annual capital formation in India. The reality is that despite the tax challenges, a businessman will still choose to do business here because they can earn 15%, 20%, or even 25% ROI.

Beyond India — which economy is truly growing? Europe is struggling, and while the US appears stable, people fail to understand that the US government is pumping massive amounts of money into the system. The more money you pump, the higher prices rise. That isn’t a sign of a healthy, growing economy; it’s an invitation for trouble. In India, we don’t have this problem.

Have you noticed how the biggest industrialists, despite their immense wealth, are staying put in India? Why? Because they know this is where real wealth creation is happening. It’s mostly professionals, middle-class, or lower-middle-class individuals — those without businesses in India — who are seeking greener pastures abroad.

India stands at a crossroads where balancing regulatory oversight with economic freedom is now imperative.

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