A high-level committee on External Commercial Borrowings (ECBs) chaired by Finance Secretary D Subbarao is expected to take a final view on the matter this week. The committee comprises officials of the ministry of finance and the Reserve Bank of India (RBI).
"We are not in a hurry to change the policy," a senior RBI official told Business Standard.
The RBI fears that relaxing ECB norms may expand liquidity and put pressure on the inflation rate, which is ruling at 7.8 per cent.
The central bank is also wary of the rupee significantly appreciating against the dollar as it did in the previous fiscal (by 12 per cent), which impacted India's export competitiveness and caused massive retrenchment in labour-intensive industries.
The central bank is also concerned about the maintenance cost of burgeoning foreign exchange reserves with interest rates on US treasury bills falling. While the maintenance cost of forex reserves is around 8 per cent, the return on investment is only 4 per cent, the official added.
"With fewer potential avenues for investing forex reserves, the cost of its maintenance has also become a challenge. In such a scenario, an overhaul in ECB policy will be difficult," the official said. India's forex reserves touched $314 billion for the week ended May 16.
The official, however, said that ECB guidelines for infrastructure may be relaxed. The infrastructure sector, which is said to require $500 billion worth of investment during the 11th five year Plan (2007-12), sources nearly $30 billion through ECBs.
Last September, ECB committee had agreed "in principle" to relax overseas borrowing norms for infrastructure but large capital inflows prevented the RBI from granting the leeway.
