In journalistic circles, Finance Minister Jaswant Singh is called Santa Claus because of the goodies he has handed out in the last fortnight. And for this Santa, spreading good tidings just does not seem to end.

This week, on Monday, continuing his mini budget handouts, Singh announced revisions in the guidelines governing external commercial borrowings (ECBs), which will warm the cockles of the corporate sector.

ECBs essentially imply overseas borrowings in foreign currency and are one of the ways for companies to raise funds. ECBs can comprise various instruments like a commercial bank loan or buyer's/supplier's credit ,etc, but the common link that runs through these instruments is that they have to be repaid in the same currency they were borrowed in. So, if you borrow in dollars, you have to pay back in dollars.

Companies were first permitted to source funds through the ECB route in the mid-'90s under certain guidelines, to ensure that such borrowings were available only to certain critical sectors and also to ensure proper end use of funds.

Initially, ECBs appeared to be a very lucrative proposition as companies could borrow at the lending rates then prevailing in, for example, the US which may have been (again, by way of example) 8 per cent, while in India the lending rate was something like 16 to 18 per cent. A tidy profit could thus be made and almost every company, which was eligible under the guidelines made a scramble for ECBs, irrespective of whether it needed the money or not.

The only problem here was that in those days the rupee was continuously depreciating against the dollar with the result that by the end of the loan payment period, companies ended up having to pay nearly 22 per cent instead of 8 per cent. This sent some companies to the BIFR and some to the cleaners. Only exporters who received their payments in dollars were hedged against the depreciating rupee.

That apart, an ECB for a principal amount of 100 rupees, owing to the depreciating rupee five years later, would drive up the principal repayment to around 120 rupees. This also snipped into the country's foreign exchange (forex) reserves. ECBs therefore, turned out to be pretty lose-lose situations.

The situation has been completely reversed today with the rupee appreciating and with the forex reserves crossing over dollars 100 billion, ECBs have now morphed into a win-win situation. We can once again expect a scramble for ECBs, irrespective of whether companies need the money or not.

For the benefit of those hoping to join the scramble, the major features of the relaxed guidelines are:

• Earlier, ECBs upto $ 50 million were permitted automatically and ECBs above $ 50 million required a case by case permission. Thanks to Jaswant Singh, ECBs upto $ 500 million with maturity of over 5 years are now permitted automatically .
• Moreover, earlier ECBs were permitted only for financing equipment imports and infrastructure. Now, ECBs are permitted for any activity except for investment in real estate and the capital markets.
• The maximum interest spread over the London Inter Bank Offered Rate (LIBOR), that a company could earlier borrow was 1.5 per cent to 3 per cent. Now, the maximum interest spread over LIBOR has been relaxed to between 2 per cent and 4 per cent.

All cases falling outside the purview of the automatic route will now be decided by an empowered committee of the RBI. The RBI will also prescribe the reporting mechanism for ECBs coming under the automatic route.

According to industry representatives, the revised ECB guidelines are largely in the direction of liberalisation and should augur well for companies seeking overseas funds. According to the Ministry of Finance, the country is in a comfortable forex position and the Government has revised the guidelines with the intention to give a fillip to the manufacturing sector, which has to sustain the current growth momentum in the next fiscal.

(According to any prudent businessman, the ECBs should come with the following statutory warning: There is no guarantee that the rupee will appreciate against the dollar three years down the line).