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Thursday, July 19, 2018

Higher ECBs when Re depreciates is a worry

Between 2006 and 2011,ECBs grew at a CAGR of 27.4% compared with 1.7% in the previous five years

Written by ENS Economic Bureau | New Delhi | Published: March 16, 2012 12:35:45 am

The current fragile global environment has prompted the Economic Survey to advise caution over further liberalisation of the External Commercial Borrowings regime. The government has,in the last couple of years,progressively expanded the scope of ECBs by expanding the limit,allowing ECBs to refinance rupee loan and more recently permitting Chinese Renminbi as an acceptable currency for raising ECBs.

“The liberalisation of ECB policy has to keep in view the need to maintain sustainable levels of external debt ratios. This is more important because of the fact that high levels of external debt ratios contributed to the balance of payment (BoP) crisis of the early 1990s,” the survey pointed out. Economists said it was a concern given the ongoing financial trouble in Europe.

“In the wake of the global concern,if there is problem in Europe then rolling over or refinancing will be tough. We are running a current account deficit and foreign funds are fragile so it is better to be prudent as excessive reliance on them may not be good,” said DK Joshi,chief economist at CRISIL.

The survey noted the India came out unaffected from the global financial crisis in 2008 mainly on the back of a strict ECB policy as a result of which the corporate sector was not exposed to balance sheet recession,otherwise a possibility had the finance ministry and the Reserve Bank of India allowed unbridled foreign borrowings.

The share of ECBs in total external debt increased substantially over the last few years. Between March 2001 and March 2006,it declined to 19 per cent from 24.1 per cent,the compounded growth rate being just 1.7 per cent. In the next five years though,ECBs grew at a compounded annual growth rate of 27.4 per cent with their share in total external debt climbing up to 30.3 per cent by September last year.

According to the survey,this increase is of concern given the rupee depreciation since it resulted in higher debt service burden in rupee terms. “That could impact profitability and the balance sheets of corporate borrowers,” it said.

The high-level committee on ECB decided to expand the scope of ECBs in September 2011. In November 2011,the ECB policy was modified and all in-cost ceiling was enhanced. The various decisions taken by the committee on ECB in September included allowing qualified HNIs to invest in Infrastructure Debt Fund,include Infrastructure finance companies as eligible issuers for FII investment in long term infra corporate bonds,permitting ECBs to refinance rupee loans of infrastructure projects,approving refinancing of buyer’s/supplier credit through ECB for purchase of capital goods by infrastructure companies and approving Renminbi as acceptable currency for raising ECBs among others.

Also the existing ECB limits under the automatic route were enhanced from $500 million to $750 million for eligible corporates.


Spurred by a strong economic growth,India has become the 4th largest economy globally. However,the country still lags in per capita income,which stood at $1,527 in 2011. Survey findings:

Stock markets

An analysis of major Asian countries’ stock indices show that Sensex gave the second maximum returns,while the highest return was given by Indonesia’s benchmark Jakarta Composite Index (JCI). JCI posted cumulative return of 419.5% in 2011-12 (April-Dec) over 2003-04,Sensex 176.4% and Nifty 161%.


The share of the hotel and restaurant sector in overall economy increased from 1.46% in 2004-05 to 1.53% in 2008-09 and then decreased to 1.46% in 2010-11. Foreign tourist arrivals during 2011 were 6.29 million,up 8.9% over 2010 and foreign exchange earnings in 2011 grew 19.6% at Rs 77,591 crore.

Postal Services

The Department of Posts’ deficit may come down by over 16% to Rs 5,309.6 crore in 2011-12. In the current year,the gross receipts were budgeted at Rs 7,517.7 crore and with gross working expenses estimated at Rs 13,522.4 crore. Govt has approved a plan outlay of Rs 1,877.2 crore for modernisation of its IT infrastructure.


India has been able to withstand the adverse impact of the global crisis and generate employment since 2009. The country saw more than nine lakh jobs being added in the one-year period ended September 2011,and IT and ITES sectors accounted for about eight lakh of those new jobs created.


India’s pharmaceutical industry spent the most in R&D in the last fiscal but domestic firms are far behind when it comes to filing patents. Although there have been substantial increases in growth rates of patents filed in India in the last decade,the share of patents through indigenous research is less than 20%.


The Economic Survey regretted that non-economic facets of life were not getting adequate attention. It called upon political leaders and policymakers to become role models of honesty and integrity,saying,“We know that a market economy cannot function if people are totally self-serving.”

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