Borrowing abroad to be easier

The government is considering relaxing the external commercial borrowings (ECB) norms and removing restrictions on Foreign Currency Convertible Bonds (FCCBs) to improve corporate India's access to low-interest capital.

Specifying that the relaxation in the ECB norms would not mean unrestricted interest rates for borrowings, UK Sinha, joint secretary in the finance ministry, said, "The government is in favour of a cap on restricted rate of interest for overseas borrowings for Indian companies, so that they access these borrowings at lower cost and high-cost external borrowing is discouraged."

"As the present the ECB norms are too restrictive to encourage Indian corporates raise substantial borrowings from overseas, the issue is actively being reviewed by the officials in the ministry," he said.

Speaking at an Assocham seminar on Foreign Exchange Management Act (Fema) Sinha said, a review was under way to remove restrictions on foreign currency convertible bonds for which announcement would be made at an appropriate time. The restrictive measures applied on FCCBs under the Fema needed to be softened, he added.

"The cost of borrowing is a concern for the government. India will not like unrestricted interest rate regime," Sinha said. The government, he said, was against allowing an unfettered interest rate regime in ECBs in view of East Asian meltdown, caused by high interest rates and short duration of such borrowings in late 1990s.

"I don't think the RBI would accept the suggestion that there should be no cap on ECBs," he said while replying to a question as to whether the current ceiling of 300 basis points above libor on ECBs beyond 10 years was relevant to the changing needs of the economy.

Sinha said even though the FDI and the FII response towards the Indian economy was not poor under the existing Fema, it did not mean that some of its provisions should not be modified.

He said the country takes pride in conservatism in forex policy as unless careful options are exercised, temporary abundance in forex may be misleading.

However, the requirement of trade and industry regarding forex should also be taken into account, the finance ministry official said.

"The government is open to suggestion on unshackling the economy and making Indian industry competitive," Sinha declared.