Sunday, December 06, 2015

Will Social Economy Of India Be Getting Improved With Relaxed ECB Norms

Reserve Bank of India (RBI) says it is taking a more liberal stance while relaxing norms for external commercial borrowing (ECB). Generally, ECB is different from long-term foreign currency borrowing. All such borrowings are denominated in the borrowing countries’ currency. In the case of India, it is in Indian Rupees.

The RBI has lessened the restrictions on end uses in a substantial way to attract more funds from overseas. This relaxation pertains under external commercial borrowing. It thus allows now loans from sovereign funds, insurance companies, and pension funds.  The revised policy also takes into consideration a better proposition for rupee-denominated ECBs. In this case, the currency risk is solely taken care by the lender. Then there are small value external commercial borrowings (ECBs) where the limit for small value borrowings has been allowed to raise. The minimum average maturity has been set to 3 years. The limit has been raised to USD 50 million from the existing 20 million capping.

The expanded list of foreign lenders will include long-term players like sovereign wealth funds, insurance companies, and pension funds. RBI has taken these steps in consultation with the finance ministry as the government is more concerned about the developments in the country related to macroeconomic developments. The sanctions are purely based on the experience acquired in this regard during the last 10 years of incorporation of these policies.
The regulatory bodies are quite satisfied with the new improvised version of these norms but will it really impact on the improvement of the social economy of India? In a substantial manner? And if it really does, what would be the timeframe? Or will it become another political gimmick?
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