Much Ado About Nothing?

Before we discuss any further let us have a quick recap. As of March 1996, the external debt of India stood at $ 92.6 billion as compared to $ 99 billion at the close of the previous year. The GDP is expected to grow at about at 7 per cent during the current financial year.

The estimates of resources required for infrastructure and other development projects run into trillions of dollars. The current domestic, equity and debt markets have been unable to raise meaningful long term resources. It is probably against this background that the finance minister announced these concessions.

The current private sector and institutional borrowers are raising rupee resources in the range of 16.5 per cent to 20 per cent per annum for periods as short as one year to as long as ten years. Most of the borrowing is in the form of fixed rates. The inflation for the last one year had been under 7 per cent on a wholesale price index basis. Despite the tremendous high real rate of interest, the domestic debt makers have started turning lukewarm to recent offerings of even AAA companies.

Now consider this:the government has announced that FII investments in corporate debt will be within the overall external commercial borrowing limits of $7 billion. In the current year, out of this $7 billion dollars, approvals for $3.3 billion have already been granted. Applications for an additional $2.5 billion are pending. Furthermore, applications for $4 billion have already been turned down, but those applicants are at liberty to reapply.

So, after all this jubilation about the so- called relaxations, the residual limit available in the current year for external commercial borrowing is about $3.7 billion. How much of this will be allocated by the ministry for direct investments by FIIs remains a major question. My guess is that that about Rs 500 million dollars may be