Rupee fall: Companies can use overseas debt to pay for import of services

Written by ENS Economic Bureau | New Delhi | Updated: Jun 27 2013, 14:27pm hrs
RupeeRBI relaxes ECB norms as rupee hits all-time low at 60.72 against US dollar. (Reuters)
On a day the rupee breached the psychological resistance of 60 to the US dollar to slump to an all-time low on Wednesday, the Reserve Bank of India (RBI) relaxed ECB norms and allowed companies to use the overseas debt to pay for import of services, technical know-how and licence fee as part of capital goods imports.

Currently, eligible entities can raise ECB (external commercial borrowing) for investment such as import of capital goods, new projects, modernisation of existing production units in industrial sector, infrastructure sector and entities in the service sector.

On review, it has been decided to include import of services, technical know-how and payment of licence fees as part of import of capital goods by the companies for the use in the manufacturing and infrastructure sectors as permissible end uses of ECB..., the RBI said in a notification.

The modifications to the ECB guidelines, the report said, have come into force with immediate effect. The rupee on Wednesday slumped by 106 paise to close at all-time low of 60.72/dollar on heavy capital outflows and month-end dollar demand from importers.

In another notification, RBI also said it has been decided that credit enhancement can be provided by eligible non-resident entities to the domestic debt raised through issue of INR bonds or debentures by all borrowers eligible to raise ECB under the automatic route. Meanwhile, exporters lobby group, Federation of Indian Export Organisations, said the slide in rupee was a "serious" matter and asked traders to use derivatives to hedge the currency risk. IT industry body Nasscom echoed the views. "I don't think a weak rupee is good for the economy. But then there is problem with a strong rupee as well. So there should be a balance," Som Mittal, president of Nasscom, was quoted by PTI as saying. Interestingly, despite the Sensex dipping by 0.41 per cent, the BSE IT index closed up 1.69 per cent on Wednesday.