ECB limits may have been breached

Though the government has kept a cap of $18 bn (2006-07) for the ECBs (External Commercial Borrowings), data upto February suggests that the cap may have been breached. It is still not official though.

Under current ECB guidelines, all companies registered under the Companies Act except financial institutions such as banks, financial intermediaries and housing finance companies are eligible to raise up to $500 mn under the automatic route in a financial year.

However, there is a restriction on end use. Funds raised from overseas markets can only be used for investment purposes such as import of capital goods, modernization and expansion of production units, new projects and investment in infrastructure such as telecom, roads and ports, among others.

So, is there a case for restricting the ECB window? NO argues today’s editorial. While forex reserves have crossed the $200 bn mark, external debt as a proportion of GDP has fallen from 17.3% in March 2005 to 15.8% in March 2006. India now ranks eighth among the top ten debtor countries in the world. It was ranked number 2 in 1991. Even the conservative Tarapore committee on capital account convertibility has suggested that longer term (7 to 10 years) ECBs be kept outside the ECB ceiling. Any review of the ECB policy must not lose track of the original guiding principles:

· To keep maturities long

· Costs low

· Encourage infrastructure and export sector financing