Government may allow liberalise ECBs up to $50 m
New Delhi: In what may be a path breaking decision, the government is said to be contemplating freeing the external commercial borrowing (ECB) policy for 2000-2001 up to $50 million, subject to guidelines. Simultaneously, the automatic approval route would be enhanced from $10 to $100 million. As a result, only large ECB applications would require government clearances.

Under the existing regulations, except for ECB applications up to $10 million under the automatic approval window of the RBI, companies have to seek the finance ministry’s approval for their foreign currency commercial loans.

The new norms being considered by the government would specify that corporates should raise foreign currency commercial loans only from registered entities, such as qualified institutional investors such as recognised banks and FIs. At the domestic end, the RBI would delegate its powers to the authorised dealer, who would keep tabs on the drawdown on the loan and inform the apex bank for statistical purposes.

By making the authorised dealers responsible for the transactions, the government is trying to ensure that there are no violations of the norms, since the ADs would be answerable for the same.

Monitoring of the drawdown is essential since the loan is drawn in several tranches and the RBI needs to know the quantum of loan drawn, the outstanding position and the maturity profiles of the loan for its own BoP calculations.

While the government has been talking for some time of delegating more and more ECB clearance powers to the RBI under its automatic approval window, this is the first time that it would actually be freeing ECB, even though the limit is up to only $50 million per borrower.

Under ECB, the government has till now been monitoring two things, including the cost of debt and the volume of debt. The government is likely to prescribe the cap on interest rates at which loans can be raised under the $50-million window.

The restriction of the borrowers under the $50-million window is being prescribed to ensure that drug and slush money do not find their way into the country.
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Assocham report states that Rupee may face more pressure
New Delhi: In a recent paper put forward by the Associated Chambers of Commerce and Industry of India (Assocham), it is stated that the widening of trade deficit and shrinking foreign direct investment (FDI) inflows will put greater downward pressure on the rupee and force the Indian currency to depreciate to a level ranging between Rs. 46.5 and Rs. 47 to a dollar by the end of current fiscal year.

There has been a sharp increase in the trade deficit during April, which has been compounded by the pick-up in non-oil imports and continuation of oil prices above the $ 25 per barrel level. Further, the not so significant expected increase in export earnings on the invisible account has helped push up the current account deficit and exert a negative impact on the exchange rate of rupee.

Trade deficit during April doubled to $ 1.1 billion as against $ 0.5 billion in the same period last year.

With the macro signal on capital inflows from abroad also not being encouraging (estimates show that FDI inflows are likely to be squeezed), the chamber is of the view that the deterioration in both the current and the capital accounts will put greater downward pressure on the rupee in the current year.

The chamber paper noted that the mismatch between demand and supply of dollars in May was attributable to the negative FII inflows and `panic' buying by corporates.
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