The government may review the curbs imposed on external commercial borrowings (ECBs), which restricted the use of funds above $20 million for rupee expenditure.
At a high-level coordinate committee meeting to be held by the month-end, the government and the Reserve Bank of India will take stock of the situation, said a source close to the development.
Various options to be discussed include hiking the limit for restricting the use of foreign funds for rupee expenditure from $20 million to $50 million or $75 million.
The meeting may also draft a framework for a final rollback of the measure over six to eight months after monitoring the liquidity situation, foreign inflows and their impact on inflation.
A source close to the development said the revision on the overall cap is not significant since ECB inflows are curtailed following the cap on rupee expenditure. At present, inflows under external commercial borrowings are capped at $22 billion and a further rise in the limit is expected as part of the annual review.
Since controlling inflation was one of the monetary priorities for the RBI, the central bank over last few months has been taking stringent measures to check foreign inflows. In the process, the government had restricted fund flows under ECB, which included tightening the pricing and end use of funds for borrowers.
Finally, the RBI banned the use of funds borrowed in excess of $20 million for rupee expenditure. Further, the companies will require prior approval of the RBI if they intend to use funds up to $20 million for rupee expenditure.
Following the recent clampdown, most Indian companies had to review their decision to tap the overseas market for raising funds.
This is because much of the borrowing was for meeting capital expenditure since cost of foreign funds worked out cheaper than the domestic funds. Now, many of these companies are negotiating with the Indian banks for either term loans or for issuing bonds in the corporate debt market.
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