RIL tops ECB chart for June; financing of capital goods forms major chunk

Data shows foreign currency spend is mainly for capital expenditure

At a time when the government is encouraging overseas borrowings, the latest figures for external commercial borrowings show that a major chunk of the overseas loans is for import of capital goods. Reliance Industries Ltd topped the chart by raising the highest amount among 81 companies which went for ECBs in June.

At $487 million, the country’s largest private sector petroleum company raised loan for a tenure of 13 years and five months for import of capital goods. Reserve Bank of India’s company-wise data shows Uttam Galva Steels raising the second largest amount of $180 million for refinancing of rupee loans. Both of these were done under the approval route. In fact, during the month of June 2013, 45% of the total ECB of $1.95 billion was for import of capital goods. This was followed by refinancing of old loans at around 14% and refinancing of rupee loans at around 10%.

While this could mean a large number of capital goods purchase is being done overseas, a worrying sign for the domestic capital goods industry, it also shows the foreign currency spend is mainly for capital expenditure.

Indian companies raised $1.95 billion in ECBs in June 2013 and $2.49 billion during May 2013 by automatic and approval route. But despite easing of ECB norms, the borrowings this June was lower compared to $1.99 billion in June 2012.

Besides foreign direct investment and foreign institutional investment, the government is banking on capital inflows in the form of ECB to finance the current account deficit (CAD). To attract foreign direct investment, the government has already liberalised ceilings in various sectors. CAD is at a high of 4.8% of the GDP impacting the exchange rate and other economic indicators like inflation and growth. The widening CAD is because the total value of imported goods, services and transfers is greater than the country's total export of goods, services and transfers.

The ministry of finance is expected to hold a meeting next week to discuss further relaxation of ECB norms for companies, especially public sector undertakings.