The committee is made up of finance secretary Montek Singh Ahluwalia, chief economic advisor (CEA) Shankar Acharya and other top finance ministry officials.

The finance secretary also reviewed the balance of payments situation in the country with the CEA and his team of officials, especially the negative outflows of foreign exchange in recent weeks and the volatility in the exchange-rate regime.

The committee discussed the issue of whether there was any need to relax the interest cap on ECBs, which had been pegged at 350 basis points above Libor or the US treasury rate. Speaking to The Financial Express, Ahluwalia said that "It is not necessary (that the cap should be raised) as many corporates are still eliciting good interest rates".

But thefinance secretary said that the government is aware of the problems that some corporates might face in tapping overseas commercial debt markets.`AAA' companies with sovereign ratings have been able to still contract loans at attractive rates. The ministry is sure that the permissions to raise ECBs will be translated into actual contracts soon. "Contrary to general opinion, there is a high demand for ECBs allocations," an official said.

Officials, who attended the meeting, said that one way to beat higher spreads could be to empower companies, which may not have `AAA' ratings, with greater flexibility in determining the spreads. Currently, the policy is to allow up to 50 per cent of the permissible debt in the form of subordinated debt at a higher interest rate, provided the composite spread for senior and subordinated debt taken together comes within the overall project financing limit. The possibility of changing the ratio of subordinated debt to senior debt was also explored.

Also reviewed was the needto put conditions governing ECBs in the telecom sector on par with those in the power sector, especially in the light of problems faced by telecom companies in mobilising funds subsequent to the imposition of sanctions. Permissions for telecom projects are currently valid only for nine months, while the approval for power projects is for one year within which a copy of the loan agreement is required to be submitted to the ministry.

What is more, ECBs limits on telecom projects are currently pegged at 50 per cent of the project cost, whereas greater flexibility is given to the power sector on this score. All other infrastructure and greenfield projects are currently permitted to avail themselves of ECBs to the extent of 35 per cent of project cost. More flexibility in this regard was also focused.

Flexibility in end-use requirements was also mooted. ECBs are to be utilised for import of capital goods and services but in case of projects in specified infrastructural areas, the money could be utilised forrupee expenditure. At present, there are seven infrastructural areas where rupee expenditure is allowed. This list is likely to be reviewed and expanded.

Urban development minister Ram Jethmalani had said that ECBs would be allowed in real-estate development. To date, all corporates are allowed to raise ECBs up to three million dollars without any end-use restrictions. Only investments in stock markets and real estate are not allowed. The finance ministry will have to frame guidelines on how to allow ECBs in the real estate arena.

Sources clarified that the ECB norms were reviewed on a "routine basis" and no decisions were taken on changing these norms. Another meet is planned before decisions are taken on modifying the guidelines.