"RBI and finance ministry officials are slated to meet next week to consider changes in the ECB policy," an official said on condition of anonymity.
Some of the proposals that the high-level committee on ECBs will take up at the meeting include easing of norms on refinancing and end-use restrictions.
At present, the RBI allows foreign borrowing for investment such as import of capital goods, implementation of new projects, modernisation and expansion of existing production units in industrial sector, including small and medium enterprises (SME) and infrastructure sector.
The proposal is to open the ECB window wider for infrastructure companies to buy equipment from domestic suppliers, which would spur demand for Indian capital goods manufacturers such as BHEL and L&T.
The present policy favours companies to borrow cheap money abroad to import machinery from foreign firms rather than borrowing at high rates in India to buy equipment from domestic capital goods companies.
ECBs should be allowed for asset and infrastructure financing companies. The end-use restrictions should be removed for buying domestic equipment, said an official of an infrastructure financing company.
RBI now allows infrastructure companies to use ECBs to repay only 25% of the rupee loans taken from domestic banks while 75% of the foreign loans have to be utilised for capital expenditure.
The government is considering some relaxation for the repayment of rupee loans considering that many infrastructure projects have been stalled due to unforeseen factors like delay in environment and forest clearances, and problems in acquiring land.
Similar relaxation is also being considered for power companies, which are now permitted to utilise up to 40% of the fresh ECB raised by them towards refinancing of the rupee loans, sources said, referring to delay in commencement of some of the projects in absence of fuel linkages.
Also, the present RBI norms for ECB to repay rupee debt comes with a rider it is capped at 50% of average annual export earning of companies and the overall limit is now at $10 billion.
These conditionalities come in the way of Indian companies to raise funds abroad given that India's exports is on the decline since end of 2011. The overall limit will also be reviewed given the Planing Commission's estimate that infrastructure sector would need $1 trillion investment over the next five years with half of it coming from private sector, an official said.
With the auction for cancelled 2G spectrum coming up in January, there is also a thinking within finance ministry of allowing telecom firms to tap the ECB window as it was done to facilitate 3G auctions. There is already an apprehension that telecom companies may not be able to put up attractive bids as they have piled up huge debt. Borrowing from Indian banks for buying extra airwaves would only increase their burden whereas a higher ECB limit could lessen their interest cost, an official said.
While repayment and end-use norms may be tweaked, finance ministry sources said the RBI is unlikely to relax the end-use restriction of using ECBs for investment in capital market, mergers and acquisitions, real estate and working capital needs.
With regard to ECBs for low cost housing, the government plans to impose stiff end-use norms to ensure that overseas funds are not used by developers for other purposes.