Introduction
- External commercial borrowing (ECB) is basically a loan availed by an Indian entity from a non-resident lender.
- They are used widely in India to facilitate access to foreign money by Indian corporations and PSUs (public sector undertakings).
- In the post reform period, ECBs have emerged a major form of foreign capital like FDI and FII
- Unlike China, most of the Indian foreign debt is mainly owned by the private corporate sector.
- ECBs have emerged as one of the chief conduits for strengthening the Indian corporate debt market.
- According to data on ECBs from RBI, it is found that its quantum has grown during the last decade (financial years 2007–17).
- The government follows a well-designed ECB policy - government puts ceiling for the total amount of ECBs that can be obtained by all Indian firms through the ECB route during a year.
- RBI recently liberalised the norms for ECB by including more sectors in the window
Sahoo Committee report on ECB
- The Sahoo Committee was set up in 2013, to develop a framework for access to domestic and overseas capital markets.
- The Committee noted that the possibility of market failure can be ameliorated, by requiring firms that borrow in foreign currency to hedge their exchange risk exposure.
- The present complex array of controls on foreign currency borrowing should be done away with.
- The Indian domestic rupee debt market is a viable alternative to foreign borrowing for financing Indian firms and does not entail any market failure.
- The policy should aim at removal of all impediments to the development of the domestic rupee debt market.
