ECB more than USD 20 million per borrowing company would be permitted only for foreign currency expenditure. Accordingly, borrowers raising ECB more than USD 20 million shall park the ECB proceeds overseas for use as foreign currency expenditure for permissible end-uses. The above modifications would be applicable to ECB exceeding USD 20 million per financial year both under the Automatic Route and under the Approval Route.
Indirect Effect on "Local Indian Manufacturing Industry":
I believe the move to curb the ECB will have negative effect on "Local Indian Manufacturing Industry" because the curb on ECB will provide impetus to "importing plant equipments and associated machinery for Infrastructure Projects" rather than purchasing them from Indian Manufacturer or for that matter of fact even the so called "Technology Transfer" that is invariably attached and expected in big ticket infrastructure investment would be an distant dream.
Financing the "imports" will definitely will have an added advantage of at least around 200-300 basis points are rupee expenditure financing by ECB is restricted with this move.
When we are talking about investment of around 350 billion USD in next 5 Years (I think the figures are revised up to 425 billion dollars) than such a move definitely will hinder the growth of Manufacturing Industry in India.
Just by simple calculation if we see, out of 425 bn USD if "other than government investment" comes to around 200 bn USD than taking just 25% of that amount that is around 50 bn USD would have gone to Local Manufacturing Industry and curb on ECB will definitely work against this investment, as be it any infrastructure or for that matter any project, corporate will not be able to fund the investment in rupees by raising cheap ECB pursuant to the above restriction.
I think in this complex world RBI needs to develop better filter to achieve the desired results rather just putting blanket restriction such as curbing ECB.
Indirect Effect on "Local Indian Manufacturing Industry":
I believe the move to curb the ECB will have negative effect on "Local Indian Manufacturing Industry" because the curb on ECB will provide impetus to "importing plant equipments and associated machinery for Infrastructure Projects" rather than purchasing them from Indian Manufacturer or for that matter of fact even the so called "Technology Transfer" that is invariably attached and expected in big ticket infrastructure investment would be an distant dream.
Financing the "imports" will definitely will have an added advantage of at least around 200-300 basis points are rupee expenditure financing by ECB is restricted with this move.
When we are talking about investment of around 350 billion USD in next 5 Years (I think the figures are revised up to 425 billion dollars) than such a move definitely will hinder the growth of Manufacturing Industry in India.
Just by simple calculation if we see, out of 425 bn USD if "other than government investment" comes to around 200 bn USD than taking just 25% of that amount that is around 50 bn USD would have gone to Local Manufacturing Industry and curb on ECB will definitely work against this investment, as be it any infrastructure or for that matter any project, corporate will not be able to fund the investment in rupees by raising cheap ECB pursuant to the above restriction.
I think in this complex world RBI needs to develop better filter to achieve the desired results rather just putting blanket restriction such as curbing ECB.
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