The Union finance ministry on Wednesday began implementing the Budget proposals on external commercial borrowing (ECB) for capital needs of the power and roads sectors. It also indicated the same thing would be done for the airline sector later this month.
This comes a day after Finance Minister Pranab Mukherjee’s assertion that the 50-basis-point repo rate cut by the Reserve Bank of India (RBI) would be followed by policy steps in tandem. RBI, too, had made it publicly clear that its monetary policy initiatives needed to be backed by government policy action.
On on Wednesday’s changes, the ministry’s joint secretary, capital markets, Thomas Mathew, said RBI would be issuing the relevant circulars and notifications within a week.
Power companies have now been allowed ECB to finance their rupee debt up to a maximum of 40 per cent, provided the remaining 60 per cent of ECB raised is utilised for investment in a new project. “This would increase access to cheaper funds for companies in the power sector,” said Mathew.
Currently, Indian companies in the infrastructure sector are permitted to use 25 per cent of fresh ECB raised by them towards refinancing of rupee loans under the approval route.
To also provide a fillip to road construction, the Budget for 2012-13 proposed allowing ECB for capital expenditure on the maintenance and operations of toll systems, provided these were part of the original project. “Implementation of this policy decision will provide an additional source of low-cost capital,” said Mathew on Wednesday.
Other measures proposed in this year’s Budget included permitting ECB for working capital requirements of the airline industry for a year, subject to a ceiling of $1 billion and allowing ECB for low-cost affordable housing projects. Also proposed were reduction in the rate of withholding tax on interest payments on ECB from 20 per cent to five per cent for three years for power, airlines, roads and bridges, ports and shipyards, affordable housing, fertilisers and dam projects.
Mathew said implementation of the step proposed for meeting the capital requirement of the airline sector was next. And, all the other measures announced in the Budget would be implemented soon.
He said there was no proposal to raise the ECB ceiling for 2012-13 but the existing limit would be adequate, not a hindrance. The ECB ceiling for 2011-12 had been enhanced from $20 bn to $30 bn.
