Thaindian News

New Delhi, Feb 5 (IANS) Overseas investors are increasingly pumping money into India’s infrastructure sector, especially in the power, oil and gas, telecom and iron and steel segments, due to the prospects of high returns, an industry report said.

The flow of external commercial borrowings (ECBs), that include bank loans, suppliers’ and buyers’ credits, fixed and floating rate bonds and borrowings from private sector windows of multilateral financial institutions such as International Finance Corporation, surged 50 percent to $36 billion in 2011 as compared to $24 billion in the previous year, as per Reserve Bank of India data.

“A closer look at the pattern reveals that the lion’s share in ECB is held by the infrastructure sector, contributing to about 80 percent of the total, which includes the telecom, power, oil and petroleum and iron and steel,” industry group PHD Chamber said in a report Sunday.

“The strong external funding can be attributed to high interest differentials available to foreign resources, vis-a-vis India, supported by high unexplored development opportunities in infrastructure within the country,” it said.

External commercial borrowings are used as an additional source of funds by private and public sector firms for financing expansion of existing capacity as well as for fresh investment.

These have emerged as a major source of funding for the development of core sectors in the country, especially in the bad years when India faced tight interest rate regimes in the wake of rising inflationary situations.

There is a growing tendency for Indian corporates to raise funds from foreign resources as the cost of funds in India is significantly higher than international resources.

However, going ahead, there might be some implications for cost of obtaining external funding vis-a-vis risk aversion in the global financial markets, the report said.

“The allocation of global finan­cial capital in the future will be very dif­ferent from the past, since the demands of the public debt of the advanced economies will be larger,” it said.