Government allows Indian companies to borrow in Chinese yuan; approves projects worth over Rs 18,000 crore

NEWDELHI: After months of tardy decision-making and policy inaction, the governmentstepped on the accelerator on Thursday to clear a raft of decisions that madeoverseas borrowings by Indian companies cheaper and easier and refocusedattention on infrastructure.

It allowed Indian companies to borrowin Chinese yuan; raised the limit on overseas borrowings without prior approvalsto $750 million; cleared the ambitious $90-billion Delhi-Mumbai industrialcorridor; and approved projects worth over Rs 18,000 crore.

Thisflurry of activity on a single day and the government's apparent acceptance ofall key demands put forth by a galaxy of top industry leaders during theirmeeting with Finance Minister Pranab Mukherjee last month seemed designed tosend out a strong signal that it was keen to revive corporate sentiment and endthe perception of drift.


The attempts to speed up investments followwidespread concerns that new projects by industry have all but stalled becauseof an uncertain environment and the government's seeming inability to doanything about it, made worse by rising interest rates. The proposals, however,drew a guarded response from industry.

“One swallow doesn'tmake a summer... Let's wait for a while before drawing conclusions," said RajivKumar, secretary general of industry body Ficci. A long-pending manufacturingpolicy prepared by the industry ministry and listed for clearance by the cabinetcould not be cleared because of opposition from the labour and environmentministries. Mukherjee had met top industry honchos on August 1 to seek theirsuggestions to spur the economy grappling with growth slowdown and highinflation.

Policy not Cast in Stone:Gopalan

Tata Group Chairman Ratan Tata, Reliance IndustriesChairman Mukesh Ambani, Bharti Enterprises Chairman Sunil Mittal, ADAG ChairmanAnil Ambani and Essar Chairman Shashi Ruia were among those who met the financeminister.



Someof them had suggested changes in the overseas borrowings policy, which couldhelp them raise funds in overseas markets where interest rates are in low singledigits while rates at home are at double-digit levels even for top corporates.Even on a fully-hedged basis, access to foreign borrowings will be at least 200basis points cheaper for a top-rated company.

The external commercialborrowing policy has been eased to allow India Inc to borrow in Chinese yuan andrefinance their rupee loans. The government has also increased the total amountthat can be borrowed under the socalled automatic route to $750 million from$500 million. It, however, kept the overall cap for ECBs at $30 billion.“The policy is not cast in stone.

We will review it again andthis cap will not act as a constraint,” said R Gopalan, secretary in thefinance's ministry's Department of Economic Affairs and chairman of theHigh-Level Coordination Committee (HLCC) on ECBs that approved Thursday'schanges.

This committee has officials from the finance ministry andRBI. “The central theme of this policy liberalisation seems to be directedtowards facilitating Indian entrepreneurs to source lowcost funding,” saidAkash Gupt, executive director at PwC. Kumar at Ficci also agreed the policywould allow industry, particularly the infrastructure sector, to accessrelatively cheaper funds. The decision to allow companies to borrow in yuan,albeit with prior approvals, drew cheers from powercompanies.

“It expands the menu for borrowing to anothercurrency, and yuan is an important currency. Chinese banks would prefer to lendin yuan instead of dollars. It gives us more flexibility,” said anofficial with a leading power company that has placed import orders with Chinesemanufacturers.

But local power equipment major Bhel expresseddisappointment at the move. “We were already facing competition from cheapequipment imports from China, This permission to borrow in Chinese currency willmake things even more difficult,” he said.

Economists said theydid not see the liberal overseas borrowing policy and a flood of money becauseof it adversely impacting the central bank's monetary tighteningstrategy.

“The idea seems to help investments and fuel growthengines without compromising domestic monetary policy as ECBs are essentiallyraised to fund capex,” said Abheek Barua, chief economist at HDFC Bank.The Delhi-Mumbai industrial corridor project will set up nine mega industrialzones of about 200-250 sq km along a 1,500 km high-speed freight line connectingthe two cities. It will include three ports and six airports, as well as asixlane intersection-free expressway connecting the country's political andfinancial capitals and a 4,000 mw power plant and also set up seven newcities.