SEZ developers may be allowed to raise ECBs

The government is reportedly considering allowing developers and units in the Special Economic Zones (SEZs) to borrow funds from external sources.

The move will likely reopen the External Commercial Borrowings (ECB) window for accessing overseas funds that was earlier allowed by the RBI in 2007 for a brief period.

An announcement in the matter is expected in the budget which is scheduled to be unveiled by finance minister, Pranab Mukherje in the parliament on 6 July.

According to analysts the move would not only allow SEZ developers to raise ECBs to promote development of special economic zones but would also help the government arrest decline in foreign exchange reserves.

Under its Export-Import Policy 2002-07, the government had allowed SEZ developers to raise ECBs up to $500 million for maturities of less than three years.

Meanwhile several SEZ developers, including realty major DLF have reportedly requested the Board of Approval in the commerce ministry  for de-notification of their SEZ and several developers are asking the government for more time to complete projects due to lack of funds.

Exports from SEZs grew to Rs90,416 crore in 2008-09 rising 36 per cent from Rs66,638 in the previous fiscal.

In 2007 RBI had allowed ECB for a short period for development of integrated townships 100 acres or more in size. According to industry experts other sectors of the realty sector were excluded as realtors borrow funds against land which they pledge. If ECB were allowed for all segments of real estate in the event default by defaulters the repossession process would allow transfer of title overseas. Development of integrated townships would mostly be taken up by the big players which would ensure that the chances of default and transfer of title would be less. Integrated township development therefore remained a safer bet.

Another reason, they point out is that ECB in the segment would serve to decongest cities. They say mega cities do not have that amount of space to spare for development and the move would serve to encourage development in places away from clogged cities.