As concerns rise over sharp rise inflow of foreign funds to India, the government will set up a joint committee under the finance ministry and Reserve Bank of India (RBI) to make recommendations on the introduction of a mechanism for auctioning external commercial borrowings (ECBs) to corporations.
To be headed by the joint secretary (capital markets), in the finance ministry, KP Krishnan, the committee will have officials from the RBI, department of economic affairs and department of financial services.
A senior finance ministry official said: “The committee has been formed following reservations from RBI on the proposal to auction ECBs.”
“The committee will review the technical and operational issues involved in the auction process, and submit its recommendations in the next meeting of the high-level committee on ECBs under Finance Secretary Ashok Chawla,” the official said.
At present, companies can raise upto $500 million (Rs 2,332 crore) in a year under the automatic route. Infrastructure firms under the approval route can remit up to $100 million (Rs 466 crore). For all other companies the cap on approval route remittance is $50 million (Rs 233 cr).
There has been a sharp rise in capital inflows as companies prefer to borrow from overseas markets at cheaper interest rates than prevailing in India.
Funds raised through ECBs and foreign currency convertible bonds rose 70 per cent in the July-September quarter to $4.61 billion (Rs 2.2 lakh crore) from the previous quarter.