In the recent past there have been significant changes in the exchange control regulation and to be in line with the economic liberalization, the capital account transactions have been progressively liberalized. There are two critical components of capital flows, one being Foreign Direct Investment (FDI), other being foreign currency debt. There is virtually no restriction on FDI except for entry into specific sectors. However, until the recent past the External Commercial Borrowing (ECB) framework was very constraining. The inclination towards ECB for capital flow is generally more as debt is cheaper than equity. The ECB regime has evolved in response to the investment needs of the economy as well as that of specific priority sectors.
The Reserve Bank of India (RBI) has recently revised the overseas borrowing framework substantially relaxing the regime for ECBs. The changes have removed almost all restrictions on eligible lenders and eligible borrowers and have substantially expanded the scope of end-use restrictions. The new policy has increased the overall limit of borrowing without an approval requirement, which means that the RBI is moving towards self-regulated environment. On the contrary, it has introduced strict compliance requirements with stringent consequences such as the condition for payment of Late Submission Fees and Compounding of non-compliances.
The revised policy has to a large extent opened up the avenues for overseas borrowing, on the contrary does that mean that the reporting of compliances and the cost of breach have increased? Considering the recurrent changes in various regulations, it is very important to understand the evolving exchange control regulations under Foreign Exchange Management Act, 1999.
The document covers
- Understand the basics of the revised overseas borrowing framework
- Enlighten the companies about the new avenues of capital flow
- Evolution of various reporting mechanisms and the consequences of violation
- Understand the implication of revised framework on various sectors.
Will new ECB framework change the borrowing plans of Indian Corporate?
