Heavy Ind Min concerned over higher ECB cap for power projects

Red flag comes at a time when domestic power equipment makers grappling with tough business conditions amid sluggish growth

The Heavy Industries Ministry has raised concerns over enhanced external commercial borrowing limit for funding domestic power projects, citing that the move adversely impacts local gear makers including BHEL.

The red flag comes at a time when the domestic power equipment makers are grappling with tough business conditions amid sluggish growth, stiff competition and cheaper imports.

"The Reserve Bank of India's decision to enhance ceiling on External Commercial Borrowings (ECBs) for financing of domestic power projects has further affected the prospects of domestic power equipment makers," an official told PTI.

In this regard, the Heavy Industries Ministry has also written to the Finance Ministry, he added.

The major concern is that higher limit for raising funds overseas also facilitates sourcing of equipment from outside the country for power projects. Such a scenario adversely impacts the business prospects of domestic equipment makers.

Many Indian entities have sourced equipment for their power projects along with finance from overseas, especially from China.

As part of efforts to boost capital inflows into the country, the RBI recently eased ECB norms.

In September, the central bank allowed all types of companies to avail trade credit facility from overseas for import of capital goods.

"On a review, it has been decided to allow companies in all sectors to avail of trade credit not exceeding USD 20 million up to a maximum period of five years for import of capital goods as classified by Director General of Foreign Trade (DGFT)," RBI had said.

Earlier, only companies in the infrastructure sector were allowed to raise such trade credits.

Currently, local players, including state-owned BHEL, are going through a difficult period, especially from 2011-12.

Besides cheaper imports, weak investment sentiment, financing constraints and lack of level-playing field with regard to foreign competitors are hurting the domestic entities.

"... Some of the existing power projects are going slow or are being put on hold due to customer's constraints in releasing payments for deliveries and other constraints faced by them thereby curtailing progress of their projects," the official said.