The government is considering to liberalise overseas borrowing rules for companies building roads, ports and utilities as five-year high domestic interest rates may hurt their projects and slow the pace of economic growth.
?The government is examining the proposal of having a more liberal external commercial borrowing regime especially for infrastructure,?? minister of state for finance Pawan Kumar Bansal told the Rajya Sabha on Tuesday.
The Reserve Bank of India has increased its benchmark interest rate to a five-year high and banks? cash reserves to a six-year high this year to curb price gains stoked by the country?s economic growth. Higher loan rates may slow investments in the infrastructure projects.
?If the prime lending rates are very high then naturally the interest rates on loans for riskier long gestation infrastructure projects would be much higher. ?This may indeed affect the viability of infrastructure projects,? Bansal said
According to the government?s estimates, India will need an investment of $490 billion to build roads, ports and bridges by 2012. The government is also of the view that current investments in infrastructure is good enough for 5-6% growth but not adequate for the targetted 8-9 growth.
Indian companies want to tap overseas loans because the benchmark rate for companies borrowing in London is almost 3 to 5 per cent points lower than the comparable rate in India.
The government has recently tightened ECB norms due to abundant flow of capital from abroad, which has resulted in a sharp appreciation in the value of rupee and a fall in export revenues. The rupee has appreciated over 12% since the beginning of the year.
The finance ministry, in August, imposed curbs on overseas borrowing by companies to slow capital inflows that have driven the rupee to a near nine-year high. Companies borrowing more than $20 million overseas can?t remit the proceeds to India, while the central bank?s permission will be needed to repatriate funds up to $20 million.
This has the potential to slow the growth of the infrastructure sector, as companies can no longer raise cheaper funds from overseas to finance projects in India. Now the government is thinking to alter the ECB policy specifically for the infrastructure sector.