Finance minister P Chidambaram today described the limits on external commercial borrowing (ECB) by local companies as “temporary”, indicating that the government may ease the curbs once the monitory situation improves. “The only restriction that we have placed on ECBs, which I hope is temporary, is that you must spend the money abroad on capital expenditure. If things get better, we shall certainly revisit these restrictions,” Chidambaram said at a post-Budget meeting with the Federation of Indian Chambers of Commerce & Industry (Ficci) today.In August 2007, the government imposed restraints on companies seeking to borrow from overseas to slow capital inflows that had pushed the rupee to a nine-year high. Companies borrowing more than $20 million abroad are not allowed to remit the proceeds to India, while the Reserve Bank of India’s (RBI) permission is mandated to repatriate funds up to $20 million.The restrictions were imposed because of the huge surge in capital inflows, which led to the rupee’s appreciation, he pointed out, adding that it was industry itself that was complaining about the strengthening of the domestic currency against the dollar. Capital inflows to the country have been at a record high since last year. It is estimated that in the first half of this fiscal (2007-08), about Rs 10,557 crore was raised in the form of ECBs — almost double that raised in the same period of 2006-07. Meanwhile, capital inflows rose by 7.7 per cent of GDP during the same period. As a result of this, the rupee has appreciated by over 13 per cent since last January. In his Budget speech last week, Chidambaram had also noted that huge capital inflows continue to pose a challenge to monetary management.The government, however, has not shuttered the ECB window completely, the finance minister pointed out. “Companies can still raise up to $500 million abroad without seeking approval from the central bank.”The central bank, which moderates capital flows, is in a difficult position, the minister noted. “The RBI governor’s task is an unenviable one. He has to balance a number of interests, especially containing inflation, managing the money supply and maintaining monetary and financial stability,” the finance minister pointed out. BORROWING BLUES• FM promises to revisit curbs if situation improves• Capital inflows worth 7.7% of GDP caused 13% Re rise• Firms raising over $20m not allowed to remit proceeds• RBI permission needed to repatriate funds up to $20m
