Indian firms allowed to borrow more from abroad

Indian firms can borrow up to USD 40 bn this year from overseas markets, with the government moving in to ensure easy availability of funds for the rapidly recovering economy.

The high level co-ordination committee on external commercial borrowings decided in principle to raise the annual indicative ceiling to USD 40 billion for 2010-11 from USD 35 billion last year, a government official said.

The higher limit will allow Indian corporates to access cheaper funds abroad at a time when interest rates are set to harden in the domestic market due to the central bank’s monetary tightening measures.
The higher limit will come handy for infrastructure companies including those in telecom sector, which are expected to borrow heavily once the ongoing 3G auctions are complete. The government has allowed successful 3G winners, which are expected to pay nearly USD 10 billion, to refinance their domestic debt through ECBs.

The higher limit comes despite concerns that capital inflows into emerging markets could go up sharply, creating exchange rate and monetary management issues.

The companies are allowed to access overseas debt on a first-come-first-served basis within the $40 billion limit. But actual borrowing in the year could exceed the $40 billion limit as some dollar funds can also come through the automatic route, where prior approval from RBI is not needed.

The government seems to be of the view that credit needs and not capital flows is the more urgent issue now. Even the limit on foreign institutional investments into corporate bonds is likely to be hiked to USD 20 billion from USD15 billion.