However, such firms will not be allowed to avail of external commercial borrowings (ECBs) under the automatic route. A finance ministry release said the amendments to the ECB policy would be effective after the Reserve Bank of India's (RBI) approval. The software industry, however, is not enthused.
Mohandas Pai, HR head at Infosys Technologies and ex-CFO, said, "The announcement will not have any major impact on the top-tier IT firms as they are cash surplus. For smaller firms, this is a welcome move as it gives them another route to raise capital. But you have to keep in mind the current market conditions in terms of dollar inflows, especially after the sub-prime crisis in the US."
Rostov Ravanan, CFO and company secretary, MindTree Consulting, said, "It is a notional measure. It's too early to predict the impact, but should not make much of a difference. For those who want to raise working capital on a short-term basis, they might go in for this route."
Atul Nishar, executive chairman, Hexaware Technologies, said, "We have been a cash-surplus company. For the overall industry, this is a positive move. Raising the cap to $50 million is a reasonable limit for the IT industry, especially for those who plan to use this for building infrastructure."
On Thursday, the government raised the limit on the amount that a firm can borrow abroad to $50 million from $20 million for rupee expenditure under the approval route.
It also allowed infrastructure companies to borrow $100 million from abroad, and raised the FII investment limit in government and corporate bonds to $5 billion and $3 billion, respectively. However, the existing $500-million annual borrowing limit for individual companies through the automatic route has been left unchanged.
A high-level group on services sector headed by Planning Commission member Anwarul Hoda had recently recommended reviewing the ECB policy for this sector. The report said several sub-segments within the services sector require significant capital investment and need to raise debt resources to finance asset creation.
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