India Eases Foreign Borrowing Rules to Aid Infrastructure

Sept. 23, 2008
Existing limit of $100 million is increased to $500 million for borrowers in the infrastructure sector

Indian companies building badly needed infrastructure, seen as key to economic growth, can now borrow more abroad, the government announced, to counter a domestic borrowing crunch. Firms working to improve dilapidated roads, gas, ports and other sectors have found it much harder to raise funds at home as the central bank has aggressively tightened monetary policy to battle inflation at 13-year highs.

"Considering the huge funding requirements... it has been decided to enhance the existing limit of $100 million to $500 million for borrowers in the infrastructure sector," the finance ministry said on Sept. 22. Billions of dollars must be spent to improve infrastructure to achieve higher economic growth needed to lift millions out of poverty, the government says.

The finance ministry said it was changing its external commercial borrowing policy "to keep it in tune with the evolving macroeconomic situation," a reference to the difficult borrowing environment. India's ramshackle infrastructure is a "critical constraint" to stronger growth, said Montek Singh Ahluwalia, deputy chairman of the government's key Planning Commission, recently.

Under its five-year economic plan to 2012, the government is aiming to draw $500 billion in infrastructure investments to attain average growth of 9% annually.

An inflow of funds could also help boost the rupee, which is riding at two-year lows against the dollar as risk-averse foreign investors dump Indian shares amid economic turmoil sweeping the globe, analysts say. But they questioned whether the ministry's move would be enough to improve the borrowing climate for infrastructure companies. "The flow impact is unlikely to be sizeable given the (adverse) global financial backdrop," said Rajeev Malik, economist at Macquarie Securities. "Indeed, there is a good chance that the government will have to ease (the borrowing rules) again further in the next two or three months," he added.

Copyright Agence France-Presse, 2008

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