Forex for infra kept out of ECB cap

GOVERNMENT SETS INFRASTRUCTURE BANDWAGON ROLLING

Move to boost companies like metro rail corporations that buy equipment from abroad.

To ensure easier access to funds for infrastructure, the government has decided that forex reserves used to finance infrastructure will not be treated as external commercial borrowings (ECBs).

The decision was taken at a meeting on ECBs chaired by Finance Secretary D Subbarao last week.

This is being seen as a significant breather for infrastructure companies as the government recently tightened the ECB norms, keeping the gross ECB limit at $22 billion for 2007-08, the same as in previous financial year.

India would need $492 billion for infrastructure during the 11th Plan period (2007-12), Planning Commission Deputy Chairman Montek Singh Ahluwalia said in New York yesterday. The commission expects $30 billion to come through the ECB route.

"This will help infrastructure companies in power and metro rail segments import equipment and technology from abroad. However, unless companies have sufficient forex-denominated revenue, they may face the risk of exchange rate fluctuations," said Arvind Mahajan, executive director, KPMG.

Infrastructure companies are at present permitted to raise ECBs of up to $500 million under the automatic route and another $250 million after approvals.

The finance ministry and the RBI are already finalising norms for using forex reserves for financing infrastructure through an overseas subsidiary of India Infrastructure Finance Corporation Ltd (IIFCL). Infrastructure companies will be able to borrow from this subsidiary for capital expenditure outside the country.

The RBI has agreed to provide $5 billion reserves per annum for this. However, the funding pattern is yet to be finalised.

The RBI wants to provide funds through the refinancing route whereas the finance ministry wants the RBI to take an equity stake through direct investment in the IIFCL subsidiary. The law ministry has given its go-ahead for investment by the RBI in the IIFCL subsidiary.