Centre to slash ECB cap by half to $4.5 bn

NEW DELHI: The Finance Ministry is set to drastically reduce the internal ceiling for external commercial borrowings (ECBs), from the current limit of $9bn to half that level. A firm view has also been taken by the government to not raise the $1-bn ceiling on foreign institutional investments in domestic debt. FIIs have so far invested close to this ceiling, as part of the $5-bn-plus of total portfolio inflows into the country this year.
In consonance with the current stance to tighten the leash on ECBs, the finance ministry is planning to pare the ceiling by over 50% for this fiscal. The overall ceiling for ECBs also comprises sub-ceilings for trade credit, which include both suppliers’ and buyers’ credit of 180 days, besides foreign currency convertible bonds (FCCBs). These quantitative ceilings will be worked out soon, according to senior finance ministry officials.
Against the ceiling of $9bn, the actual disbursements in ‘02-03 were only around $4bn. So far this fiscal, the total approvals for overseas commercial borrowings have been less than $1bn, thanks to the clamp-down by the ministry and the RBI — which administers the $50-100m borrowings window and also the automatic route for ECBs. In the first quarter of this fiscal, ECBs aggregated just $639m. On FII debt, although the Securities and Exchange Board of India had suggested raising the investment ceiling following demands from FIIs, the government is clear that their investments — especially in government debt — need to be capped. The government is wary of opening up further, based on the experience of the south-east Asian countries a few years back when the FIIs pulled out in droves on apprehensions over market volatility. The government reckons that G-secs should be predominantly held by domestic investors.
FIIs are allowed to invest in dated securities of both the central and the state governments through the primary as well as secondary markets. The investment ceiling for FII debt is determined by the government.
The government reckons that with just about five months for the fiscal to end, the actual inflows through ECBs could be well below $1bn.

Even if corporates obtain approvals to borrow abroad under the revised policy unveiled last week, they will be forced to park the proceeds abroad until actual utilisation.
During the last couple of years, approvals and actual disbursements have been low compared to the heady days of mid-1990s, when the finance ministry had to virtually ration entitlements.