Govt maintains status quo on ECB limit

Faced with high capital inflows, the government has decided to keep the gross external commercial borrowing (ECB) limit for this financial year unchanged at the previous year's level of $22 billion.

ECBs are commercial loans raised from non-resident lenders with a minimum average maturity of three years. The ceiling was increased from $9 billion in 2003-04 to $12 billion in 2004-05, $16 billion in 2005-06 and to $22 billion in 2006-07.

The decision was taken at a high-level meeting last week. The meeting was attended by senior finance ministry and Reserve Bank of India (RBI) officials and was chaired by Finance Secretary D Subbarao.

Though the gross ECB limit was kept at $22 billion last year, the net inflows, after deducting repayments, was $20.6 billion.

The committee also discussed the option of setting a limit on net inflows. However, it was decided to stick to the earlier practice of setting a limit on gross inflows as data on net inlows comes with a three-month time lag, said an official source.

An RBI's proposal to increase the portfolio investment (FIIs) limit in government securities and corporate debt was also discussed. However, as FII investors have not used the present limit to the optimum, a decision was deferred.

For FIIs, investment limit in government securities is $3.2 billion, while in corporate debt, it is $1.5 billion.

The next meeting of the committee would analyse if ECBs were contributing significantly to the current flush of capital inflows. Commercial borrowings constituted 27.6 per cent of external debt during 2006-07.

The government had last month put fresh curbs on ECBs. Such borrowings above $20 million have now been allowed only for foreign currency expenditure for permissible end-uses. However, the rupee expenditure will require RBI's approval.

The annual ECB cap of $500 million per company and end-use norms have been kept unchanged.