Officials from the Finance Ministry and the Reserve Bank of India (RBI) are scheduled to hold a significant meeting this week to explore the potential relaxation of norms governing external commercial borrowing (ECB). This move is aimed at bolstering affordable housing projects across India.
The primary focus of the upcoming discussions will be on the relaxation of ECB norms, particularly emphasizing their application to the affordable or low-cost housing sector. A senior official from the Finance Ministry has indicated that the ministry intends to actively engage with RBI officials to identify pathways for easing the fundraising process through ECB.
This meeting is critical as it occurs against the backdrop of India’s current account deficit (CAD) soaring to a troubling 6.7% of GDP, a record high. This spike in CAD was notably influenced by an increased import bill, especially for gold and oil, observed in the last quarter of 2012.
By streamlining access to foreign funds, corporates and public sector undertakings within India can leverage lower borrowing costs, circumventing the higher interest rates that prevail domestically. This is one of the key advantages associated with external commercial borrowing.
In December 2012, the Reserve Bank of India had allowed real estate firms to tap into ECB for funding; however, the amount was limited to a maximum of one billion USD. This initiative was specifically designed to encourage the development of more affordable housing projects.
According to data from the RBI, Indian companies have managed to raise $2.1 billion through ECB in February. This figure reflects a decline compared to the $2.6 billion raised during the same timeframe last year, underscoring the need for ongoing support and regulation adjustments for the housing sector.