External Commercial Borrowings Liberalised

In August 2007, the Government tightened its policies on external commercial borrowings (ECBs). However, subsequently, in view of the changed economic scenario in the country, it has decided to liberalise its policies on ECBs. In a circular issued yesterday, the Reserve Bank of India (RBI) now allows borrowers in the infrastructure sector to borrow up to US$ 100 million for permissible end uses under the approval route. In case of other borrowers, the existing limit of US$ 20 million for permissible end uses under the approval route has been enhanced to US$ 50 million. The allowable interest rates have also been increased.

This move would allow better scope Indian corporate to raise foreign currency borrowings as ECBs were largely curtailed since August 2007 until now. Livemint has a brief report on the possible effects of this liberalization.

Update – June 3, 2008: By way of another notification issued on June 2, 2008, the RBI has allowed borrowers in the services sector, viz. hotels, hospitals and software companies to avail of ECBs up to US$ 100 million, per financial year, for the purposes of import of capital goods under the automatic route.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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