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Indian Govt allows Indian firms to borrow up to $1 billion in the Chinese currency
Amid growing clout of the renminbi, India has allowed local companies to borrow up to $1 billion in the Chinese currency within the $30 billion ceiling on foreign borrowings for this fiscal year.
This is expected to provide some flexibility to Indian companies, especially firms that import power equipment from China, as rising borrowing costs in India have been forcing them to delay investment decisions.
Economic affairs secretary R. Gopalan, who chaired a high-level committee on external commercial borrowings (ECB), said many Indian companies have represented to the government to allow them to borrow in the Chinese currency. “Renminbi wants to play a greater role at the international stage as there is (a) market for it,” he said on Thursday.
There is no specific ceiling on individual companies for borrowing in the renminbi within the limit of $1 billion. However, the proposal has to be approved by Reserve Bank of India (RBI).
The decision shows the increasing relevance of the Chinese currency, said D.K. Joshi, chief economist at ratings agency Crisil Ltd, adding the renminbi will take a while to replace the US dollar as the international currency.
Economist Arvind Subramanian recently wrote in British business daily Financial Times that the renminbi will overtake the dollar as the world’s reserve currency in a decade.
The ECB panel, comprising finance ministry and RBI officials, also decided to raise the limit on overseas borrowings of more than five years maturity under the automatic route—not requiring RBI’s approval—to $750 million from $500 million for individual firms.
But it decided against raising the ECB cap of $30 billion for this fiscal immediately. The limit will be raised if there is demand for infrastructure projects, and that, too, after factoring in the country’s overall debt repayment capacity, Gopalan said.
“We will be more responsive to demand for ECB for financing infra projects,” he said.
Between April and August, Indian companies borrowed $15.93 billion from overseas.
The committee also allowed partial repayment of rupee loans through the ECB route. But for every $100 borrowed overseas, companies have to invest $75 in new projects. They can use the balance $25 for repaying rupee debt.
“This will enhance the credidworthiness of the company while incentivizing further investment in infrastructure at the same time,” a finance ministry official said on condition of anonymity.
The panel discussed a proposal to waive withholding tax on interest payable on ECB on maturity of five or more years and decided to “strongly recommend” the exemption to the revenue department.
It also decided to allow rich individuals registered with the market regulator Securities and Exchange Board of India to invest in the proposed infrastructure debt funds, guidelines for which are expected to be issued by RBI this month.
The finance ministry official said 90% of the proposals passed by the committee came from Indian firms that met finance minister Pranab Mukherjee last month.
Mukherjee will review the progress on the rest of the proposals with other line ministries starting 29 September, the official said.
The panel has also allowed Indian firms to borrow in rupees from overseas lenders to protect themselves against currency fluctuations.
Govt allows Indian firms to borrow up to $1 bn in renminbi - Home - livemint.com
Amid growing clout of the renminbi, India has allowed local companies to borrow up to $1 billion in the Chinese currency within the $30 billion ceiling on foreign borrowings for this fiscal year.
This is expected to provide some flexibility to Indian companies, especially firms that import power equipment from China, as rising borrowing costs in India have been forcing them to delay investment decisions.
Economic affairs secretary R. Gopalan, who chaired a high-level committee on external commercial borrowings (ECB), said many Indian companies have represented to the government to allow them to borrow in the Chinese currency. “Renminbi wants to play a greater role at the international stage as there is (a) market for it,” he said on Thursday.
There is no specific ceiling on individual companies for borrowing in the renminbi within the limit of $1 billion. However, the proposal has to be approved by Reserve Bank of India (RBI).
The decision shows the increasing relevance of the Chinese currency, said D.K. Joshi, chief economist at ratings agency Crisil Ltd, adding the renminbi will take a while to replace the US dollar as the international currency.
Economist Arvind Subramanian recently wrote in British business daily Financial Times that the renminbi will overtake the dollar as the world’s reserve currency in a decade.
The ECB panel, comprising finance ministry and RBI officials, also decided to raise the limit on overseas borrowings of more than five years maturity under the automatic route—not requiring RBI’s approval—to $750 million from $500 million for individual firms.
But it decided against raising the ECB cap of $30 billion for this fiscal immediately. The limit will be raised if there is demand for infrastructure projects, and that, too, after factoring in the country’s overall debt repayment capacity, Gopalan said.
“We will be more responsive to demand for ECB for financing infra projects,” he said.
Between April and August, Indian companies borrowed $15.93 billion from overseas.
The committee also allowed partial repayment of rupee loans through the ECB route. But for every $100 borrowed overseas, companies have to invest $75 in new projects. They can use the balance $25 for repaying rupee debt.
“This will enhance the credidworthiness of the company while incentivizing further investment in infrastructure at the same time,” a finance ministry official said on condition of anonymity.
The panel discussed a proposal to waive withholding tax on interest payable on ECB on maturity of five or more years and decided to “strongly recommend” the exemption to the revenue department.
It also decided to allow rich individuals registered with the market regulator Securities and Exchange Board of India to invest in the proposed infrastructure debt funds, guidelines for which are expected to be issued by RBI this month.
The finance ministry official said 90% of the proposals passed by the committee came from Indian firms that met finance minister Pranab Mukherjee last month.
Mukherjee will review the progress on the rest of the proposals with other line ministries starting 29 September, the official said.
The panel has also allowed Indian firms to borrow in rupees from overseas lenders to protect themselves against currency fluctuations.
Govt allows Indian firms to borrow up to $1 bn in renminbi - Home - livemint.com
