Govt not to cap overseas fund tap by India Inc

Currently companies can raise $500 m annually under the automatic route

Briefing reporters Finance Secretary Ashok Chawla said  “There is no proposal where the government might ask corporates to bid for External Commercial Borrowings.” Media reports suggested that government could limit the number of companies for the purpose of tapping overseas market for funds.

Currently, companies are allowed to raise US$500 million annually under the automatic route while infrastructure firms under the approval route can remit up to US$100 million dollars for rupee expenditure. For other companies the cap on approval route remittance is set at US$50 million. Capital inflows have reached record levels as investors borrow cheap from advanced countries and invest in high- yielding assets in developing countries.

This has led to speculations that the government might put in place a system of auctioning ECBs, so that excess flow of money through commercial borrowings is checked. In India, foreign inflows through FIIs (foreign institutional investors), ECBs and FCCBs (foreign currency convertible bonds) have been on the rise, while FDI is not picking up as fast.

Chawla said that foreign capital inflows are not a cause of concern. “As of now, it is not a cause of concern. As the situation evolves, we will see what needs to be done,” he said. Meanwhile, according to the RBI data, overseas borrowings by Indian companies through ECBs and FCCBs increased by 38 per cent to to US$1.51 billion in September. On a quarterly basis, the funds raised through ECBs and FCCBs increased by 70 per cent in the September quarter to US$4.61 billion from US$2.71 billion registered in the previous quarter.