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Updated: November 20, 2009 18:39 IST

No plan to curb ECBs

Special Correspondent
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Finance Secretary Ashok Chawla.File photo: Kamal Narang
The Hindu
Finance Secretary Ashok Chawla.File photo: Kamal Narang

Close on the heels of Finance Minister Pranab Mukherjee asserting that FII (foreign institutional investor) inflows were not a cause for concern, the Union Government on Thursday ruled out putting any kind of curbs on companies from borrowing money from overseas markets stating that the surge in foreign money inflows was not a matter of concern at present.

“There is no such proposal,” Finance Secretary Ashok Chawla told journalists when asked about speculation that the government might ask corporates to bid for external commercial borrowings (ECBs).

At present, companies are allowed to raise $500 million annually under the automatic route while infrastructure firms under the approval route can remit up to $100 million for rupee expenditure. For other companies the cap on approval route remittance is set at $50 million.

Capital inflows have reached record levels as investors borrow cheap from advanced countries and invest in high- yielding assets in developing countries leading to speculation that the government may put in place a system of auctioning ECBs so that excess flow of money through commercial borrowings is checked.

In India, foreign inflows through FIIs, ECBs and FCCBs (foreign currency convertible bonds) have been on the rise, while foreign direct investment (FDI) has not been picking up as fast.

Mr. Chawla said foreign capital inflows were not a cause of concern and whenever the situation demanded, adequate steps would be taken to address any issue. According to RBI data, overseas borrowings by Indian companies through ECBs and FCCBs increased by 38 per cent to $1.51 billion in September.

On a quarterly basis, the funds raised through ECBs and FCCBs increased by 70 per cent in the September quarter to $4.61 billion from $2.71 billion registered in the previous quarter.

Also, FIIs have put in a record over Rs. 71,900 crore ($15 billion) in the equity markets so far this year. The net debt purchased by them was over Rs. 5,000 crore.

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