Govt not to impose restrictions on foreign borrowings

The government today ruled out limiting companies from borrowing money from overseas market and said that the surge in foreign money is not a matter of concern at present. "There is no such proposal," Finance Secretary Ashok Chawla told reporters when asked about speculations that the government might ask corporates to bid for external commercial borrowings (ECBs).

Media reports suggested that government could limit the number of companies for the purpose of tapping overseas market for funds.

Currently, companies are allowed to raise $500 million annually under the automatic route while infrastructure firms under the approval route can remit up to $100 million for rupee expenditure. For other companies the cap on approval route remittance is set at $50 million.     

Capital inflows have reached record levels as investors borrow cheap from advanced countries and invest in high-yielding assets in developing countries. This has led to speculations that the government might put in place a system of auctioning ECBs, so that excess flow of money through commercial borrowings is checked.

In India, foreign inflows through foreign institutional investors (FIIs), ECBs and foreign currency convertible bonds (FCCBs) have been on the rise, while FDI is not picking up as fast. Chawla said foreign capital inflows are not a cause of concern. "As of now, it is not a cause of concern. As the situation evolves, we will see what needs to be done," he said.

Yesterday, Finance Minister Pranab Mukherjee too said FII inflows are not disturbing and there are arrangements to counter them if they create "distortions". According to the RBI data, overseas borrowings by Indian companies through ECBs and FCCBs increased by 38 per cent to $1.51 billion in September.

On a quarterly basis, the funds raised through ECBs and FCCBs increased by 70 per cent in the September quarter to $4.61 billion from $2.71 billion registered in the previous quarter.

Also, FIIs have put in a record over Rs 71,900 crore (over $15 billion) in the equities market so far this year. The net debt purchased by them was over Rs 5,000 crore. FDI inflows, on the other hand, have come down to $15.3 billion in the first half of this fiscal from 17.2 a year ago.

The combined effect of these inflows has led to rupee appreciating by over five per cent during the last six months, raising difficulties of exporters already reeling under poor demand in traditional markets.

Exports have dipped for 13 straight months, falling 11.4 per cent to $12.5 billion in October this year.