New ECB rules are a giant leap forward, says MS Sahoo

The RBI has drastically liberalised external commercial borrowing (ECB) regime for India Inc on the lines of the Sahoo Committee report. Speaking to Bloomberg TV India, ECB Reforms Panel head and former SEBI member MS Sahoo says the reform is a “giant leap forward” in improving India’s competitiveness.

How much do the new ECB rules take the process forward in letter and spirit as compared with the recommendations made by the reforms committee headed by you?

We believed we must liberalise the economic agents, they must have freedom and that freedom must not be curtailed unless there is reasonable likelihood of market failure and their choice also must not be distorted.

That means we didn’t want any intervention, which can restrict the freedom of economic agents or distort the choice of the economic agents. Essentially we have been following this path since 1992. ECB has being liberalised over the past 25 years, gradually increasing the number of eligible borrowers, number of eligible lenders.

Initially, we started with an approval route. Now, practically we have reduced it to the very minimum — the approval route is required only in exceptional circumstances. That way the current reforms are a giant leap forward in the sense that it has expanded all the lists — the list of borrowers, lenders and also substantially relaxed the terms of issue. It is a much more liberal approach with much fewer restrictions. The important point to note here is that the earlier RBI master circular of July 1, 2015, ran 43 pages, while the current one runs only 16 pages.

The other important point you must observe is that ordinarily we believed that ECB means borrowing in foreign currency. Now we have started a new category, borrowing in Indian rupee-denominated bond, which was in fact one of the key recommendations of my committee. And, there is a lot more transparency. There will be monthly disclosures. It is a rule of law that the obligation is on borrowers to comply with the FEMA requirements and all the curb outs we had, n-number of categories, n-categories of borrowers and various sub-ceilings and sub-categories — all these have been done away with. Though I would have wished for a much more liberal regime I believe the RBI definitely has some constraints due to which they have not gone the whole way. But I still consider this is a major step forward.

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