External commercial borrowing norms likely to be eased (Lead)

September 22nd, 2008 - 6:51 pm ICT by IANS  

New Delhi, Sep 22 (IANS) The government is exploring options to ease norms for external commercial borrowings (ECBs) to enable firms go for faster capacity building, a senior finance ministry official hinted here Monday.“Yes, you cannot rule out the possibility of easing ECB norms,” Ashok Chawla, secretary in the Department of Economic Affairs (DAE) in the finance ministry told reporters when asked how companies would access funds to finance infrastructure projects.

Chawla said the government is committed to ensuring that infrastructure projects did not face any funds crunch, saying that the government was always ready with viability gap funding (VGF) funds as and when required.

Asked by when the ECB norms would be eased, Chawla said: “In the near future”.

In 2007, India’s central bank - the Reserve Bank of India - had tightened norms, restricting the use of ECB funds for rupee expenditure such as capital goods, new projects, and modernisation and expansion in the manufacturing and infrastructure sectors.

As per its directive, ECB money could be used for rupee expenditure only up to $20 million and only after RBI’s permission.

The $20 million restriction was later relaxed to $100 million for infrastructure companies and $50 million for other firms.

According to a government official, further ECB relaxation will likely be based on the credit requirements of productive sectors.

As per a study of Associated Chambers of Commerce and Industry (Assocham), an industry lobby, the total funds raised through ECBs by companies in India declined substantially from $11.85 billion in April-July 2007-08 to $6.52 billion in the corresponding period of 2008-09, recording a negative growth rate of 44.95 percent.

The study also showed a decline in companies raising capital through ECBs by 54.29 percent from 280 companies in the first four months in the last fiscal to 128 in the corresponding period this financial year.

The government permits ECBs for providing an additional source of funds for financing expansion of existing capacity and as well as for fresh investment to augment the resources available domestically.

Referring to the shocks in US capital market, Chawla said the impact on the Indian economy was not “critical”.

“Any impact, if there is going to be any, will be marginal on Indian situation. We need to be vigilant about the trends in global market,” Chawla said after launching the finance ministry’s database website (www.pppindiadatabase.com) with details about private public partnership (PPP) infrastructure projects.

Chawla said the database would provide “comprehensive and current information on the status and extent of PPP initiatives in India” at the central, state and sectoral levels.

At present, the database would cover 220 infrastructure projects in the railway, road, port, and airport sectors worth Rs.127,987 crore or Rs.1.27 trillion.

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