Business Today

ECB limit may be hiked

A bird's eye view of what's hot and what's not on the government's policy radar.

By Rishi Joshi | Print Edition: August 26, 2007

Pushed by the recent slump in the net inflows of foreign funds and rising interest rates, the government is mulling over the possibility of hiking the annual cap on foreign borrowings through the external commercial borrowing (ECB) route by 10-20 per cent from the current ceiling of $22 billion (Rs 90,200 crore). Last year, the limit was enhanced from $14 billion (Rs 57,400 crore) in two phases.

The Finance Ministry is also planning to change the yardstick for fixing the ECB limit. It proposes to use net inflows (gross inflows minus loan repayments) instead of gross inflows as the criteria.

RBI call: Tough stance

The RBI, however, is taking a tough line. Just last month, it had rejected the relaxation of ECB and FDI norms for infrastructure financing companies which are permitted to raise ECBs of up to $500 million (Rs 2,050 crore) through the automatic route and another $250 million (Rs 1,025 crore) through the approval route.

The external borrowings route was opened in 2001, and repayments have become effective only from 2006 due to the tenor of the ECBs-they mature in five years.

Underlying the tussle between the RBI and the Finance Ministry is the fact that the rupee is not convertible. Hence, monetary controls and manouevres have come to stay. Perhaps, puppeteers, have an easier job.

Stay invested

  • Govt. to make it simpler for MNCs to invest in India

  • Mandatory divestment stipulation being reviewed

  • The goal is to come up with a broad-based policy framework

FDI policy on shedding stake

In a move that will make it easier for foreign companies to invest in India, the government is set to review the policy that imposes divestment stipulations on multinationals in key sectors such as petroleum, food processing and chemicals. The Food Processing Ministry, in particular, may be asked for suggestions following its recent run-ins with PepsiCo on the issue of mandatory divestment in its bottling operations in India; the US cola giant wants to be exempted from the mandatory divestment obligation. The government, on its part, now wants to end the subjectivity involved in the entire exercise. The idea is to come up with a broad policy on the issue, instead of taking up proposals on a case-to-case basis. Exit arbitrariness; enter systems? Hopefully, it is not just food for thought.

Easier land deals?

Kamal Nath
Kamal Nath

While the group of ministers (GoM) looking into issues relating to various amendments to the Land Acquisition Act is still far from reaching a decision, the Rural Development Ministry has reportedly suggested that state governments be allowed to acquire 30 per cent of the total land required for industrial projects, instead of the present limit of 10 per cent.

The suggestion entails a 70:30 formula, where the individual company directly buys 70 per cent of land from the owners and the state government acquires the remaining 30 per cent. Rural Development Minister Raghuvansh Prasad Singh, who chairs the GoM (constituted after violent protests in Singur), has reportedly been lobbying hard with other Cabinet colleagues on this. According to officials, the GoM will meet sometime in August to consider the suggestion. It is an industry-friendly initiative, but will it attract criticism from the Opposition?

(With Amit Mukherjee)

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