Wednesday, August 08, 2007

Flood relief

External Commercial Borrowings (ECB) by M&A bug bitten Indian businesses have been partly responsible for the dollar deluge that drove up the Rupee to phenomenal 6% in a short period of 6 months.

To induce growth, RBI had earlier raised overseas borrowing and investment limits earlier. Now it’s altering its stance, giving in to the persuasion from domestic businesses that suffer the surging Rupee. The overall goal is to prevent the external borrowing window from weakening the financial discipline in India’s economy.

The government has announced fresh restrictions on external commercial borrowings (ECBs), capping the Companies to raise only up to $20 million abroad for rupee expenditure and only with prior RBI approval. Exemption shall only be for expenditure in foreign currency. For the rest, they will have to look for local financing. The funds raised abroad will have to be parked overseas till the actual requirement in India.

Despite Finance Minister’s warning, the effect was this.

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