Hi
Analyse of today's Editorial
http://economictimes.indiatimes.com/...ow/1992693.cms
The government is reportedly toying with the idea of raising the cap for external commercial borrowings (ECBs). It can safely afford to do so, both from a macro as well as micro perspective. On the macro front, the economy is cruising along at an unprecedented GDP growth of close to 8% for the fourth consecutive year and the external sector is in good shape.
External debt is a manageable $123 billion, overseas capital flows — both portfolio and direct — are strong and our foreign exchange reserves are a healthy $166 billion. Add to this the fact that credit growth has not been able to keep pace with demand and the case for relaxing the ceiling on ECBs is complete.
On the micro front, India Inc is on an aggressive expansion spree, both domestically and overseas. Witness the number of overseas acquisitions in the past few months and it is clear that Indian corporates are no longer content to remain stay-at-home fuddy-duddies. They now have global ambitions and need funds to translate these ambitions into reality. And how best to tap such funds than through overseas borrowings?
Agreed, the global interest cycle has turned and rates are on the upswing in most parts of the world. But there are markets — yen-denominated loans, for instance — where rates have not peaked and it could make sound commercial sense for corporates to tap these markets. More so since the credit rating of the country and of many Indian corporates has improved considerably in the past few years, thanks to our strong economic showing. Consequently, loans are available at much finer spreads than before.
Corporates too are better equipped to handle the vicissitudes of exchange rate fluctuations. In such a scenario, too rigid an adherence to the ECB cap could prove counter-productive. For the present, the existing cap of $18 billion for this fiscal may seem adequate as sanctions in the first half of the year are only about $5billion. But demand could pick up. The good thing is that if it indeed does, we can afford to take a more relaxed view and raise the cap on ECBs. Do we need any more vindication of the reform process?
The aricle is all about raising the cap for External commercial borrowings (ECBs). and it's implecation.
First 3 para is about state that it india can safely raise the cap on ECB
from both perspective i.e. Micreo and Macro level
At macro level india has Huge forex reserve i.e. 166$ bill. and it has ECB 123$ bill which is manageable. and india's GDP growth of 8 % for the forth consicutive year.
On Micro level India Inc has adopted aggresive expansio strategy which can be seen from the oversea acquisition in recent months and India Inc now has ambition to global indian player. and this can be achieved only by ECB.
Though the Global interest rates are on upswing in most part of the world but there is market like YEN denomination loan where rates have not yet too high. loans are available at much finer Spread and India Inc is in position to handle the exchange rate fluctuation. At this time too rigid to ECB cap can be counter productive.
Current cap on ECB ---18$ bill
Sanctined---5$ bill
The
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