India in love with ECBs

Despite efforts to bring down interest rates and make domestic debt attractive, India Inc’s penchant for external commercial borrowings (ECBs) remains intact.

In the first half of 2004-05, total ECB approvals doubled to $9.4 billion, compared to $4.7 billion in the same period last year. More significantly, net ECB inflows in the first half of the current fisc was $2.1 billion as against just $167 million the corresponding period of the previous year.

Interestingly, corporate India is borrowing more from abroad at a time when the government is reducing its external debt portfolio. According to data provided in the Survey, the private sector now accounts for 60% of India’s external debt as on September 2004 while the government’s share is 40%.

The ratio used to be the other way round during the early days of the liberalisation, with the government accounting for 60% of all external debt till 1995.

ECB inflows are expected to be much higher than outflows during the current fiscal. In 2003-04 and 2002-03, outflows due to redemption of Resurgent India Bonds was more than the ECB inflows.