Fema the M Mechanism of Funding Essay

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INTRODUCTION EXTERNAL COMMERCIAL BORROWING: An external commercial borrowing (ECB) is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings). ECBs include commercial bank loans, buyers' credit, and suppliers’ credit, securitised instruments such as floating rate notes and fixed rate bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of multilateral financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. ECBs cannot be used for investment in stock market or speculation in real estate. The DEA (Department of Economic Affairs), Ministry of Finance, Government of India along with Reserve Bank of India, monitors and regulates ECB guidelines and policies. For infrastructure and Greenfield projects, funding up to 50% (through ECB) is allowed. In telecom sector too, up to 50% funding through ECBs is allowed. Recently Government of India has increased limits on RBI to up to $4[1]0 billion and allowed borrowings in Chinese currency Yuan. Borrowers can use 25 per cent of the ECB to repay rupee debt and the remaining 75 per cent should be used for new projects. A borrower cannot refinance its existing rupee loan through ECB. The money raised through ECB is cheaper given near-zero interest rates in the US and Europe, Indian companies can repay their existing expensive loans from that. The ministry has not put any ceiling on individual companies for using renminbi as currency for ECB. Even though the overall limit for permitting it under ECB is only $1 billion, the officials denied possibilities of a single company using the entire amount as it would come under ‘approval’ route. The cost of borrowing in Renminbi is far less,” said a finance ministry official. “Companies go for it as it is on

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