In significant policy shift, the government today decided to allow corporates to raise external commercial borrowings (ECBs) in Yuan (Renminbi) equivalent to $1 billion, a move that will help companies trading with China.
"For the first time we are allowing Yuan (Renminbi), (equivalent of $1 billion) as an acceptable currency under ECB, basically for infra and capital goods," Department of Economic Affairs Secretary R Gopalan told reporters after a meeting of the High-Level Coordination Committee on ECBs.
Giving rationale for the decision, he said, "Yuan wants to play much bigger role...Certainly there is market for it."
The decision to allow companies to raise ECBs in Yuan will benefit infrastructure firms like ADAG company Reliance Power and Lanco Infratech.
Although the committee did not raise the overall ceiling of ECB which is currently at $30 billion, it did decide to relax the norms and raise the borrowing limits for various sectors to help the companies obtain funds from overseas markets at competitive rates.
Out of the total limit of $30 billion, ECBs amounting to $15.93 billion have been raised by the companies until August 2011.
The government, Gopalan said, will also be looking at the possibility of reducing withholding tax on the ECBs.
"Withholding tax will be brought down, we are interacting with department of revenue", he added.
The decision to relax ECB norms follows the suggestions made by top industry leaders at a meeting last month with Finance Minister Pranab Mukherjee to boost the economy.
The limit of external borrowings with tenure of 5 years or more under the automatic route has been increased from $500 million to $750 million. The decision will help the companies across all segments to access higher quantum of overseas funds, he said.
For the services sector, Gopalan said, the ECB limit under the automatic route has been doubled to $200 million and for NGOs from $5 million to $10 million.