As part of the exercise to modify ECB guidelines in view of the changes in the external sector, the ministry has raised the limit for the $3-million scheme to $5 million, relaxed the average maturity profile of short- and long-term borrowings and enhanced eligibility norms under the exporters/foreign exchange earners scheme.

On project-related rupee expenditure, the government has decided to permit external debt in all the sectors. However, the permission for such ECBs will be subject to certain conditions. The ECB raised for project-related rupee expenditure must be brought into the country immediately. Second, the debt raised for import of capital goods and services should be utilised at the earliest and corporates should strictly comply with RBI's guidelines on parking ECBs outside till actual imports. The Reserve Bank will monitor ECB proceeds parked outside.

Third, conditions stipulate that the ECB raised will not be permitted for investment in stock market or in real estate. Other conditions regarding ECB eligibility for project finance and exposure limit would remain unchanged.

The limit under the $3-million scheme has been raised to $5 million, and the Reserve Bank of India, as before, shall continue to be the approving authority.

As part of the modified guidelines, the average maturity requirement for ECBs under the long-term maturity window which are outside the cap has been reduced to eight years from 10 years for ECBs up to $100 million and to 16 years from 20 years for ECBs up to $ 200 million for general corporate objectives.

The government has also relaxed the minimum maturity norms for the $5-million scheme to three years simple maturity; for ECBs up to $20 million to three years average maturity; ECB for 100 per cent EOUs to three years average maturity for any amount; and for ECBs above $20 million to five years average maturity for all other sectors.

Under the exporters/foreign exchange earners' scheme, ECB eligibility has been raised to three times, from the current two times, of the average export performance during the last three years subject to a maximum of $100 million.

The modified guidelines have also specified that in order to enable corporates to hedge exchange rate risks, domestic rupee-denominated structured obligations would be permitted to be credit enhanced by international banks/international financial institutions/ joint venture partners.

The ECB guidelines, which have been modified in the background of changed external conditions, the requirement of the corporate and access to the international capital, will become operative with immediate effect.

INSIGHT
Can ECB-use be accelerated?

The government is no longer lackadaisical about letting corporates keep ECB funds as balances abroad. Borrowers must use them up in financing rupee cost of projects and in financing capital goods imports. An advisory to this effect had been issued some time ago. Its reiteration means that the Reserve bank will strictly monitor ECB balances held abroad despite the mega inflow of RIB funds. The problem is that the rupee has been depreciating, and using ECBs poses the problem of servicing them, especially in view of the squeeze on margins in both the domestic and export markets.