In a move aimed at protecting domestic power equipment manufacturers from the onslaught of cheap Chinese imports funded by low-cost yuan credit, the Government has decided to withdraw the External Commercial Borrowings (ECB) in Chinese currency for power plants.
Currently, Indian companies are allowed to raise such loans up to a limit of $1 billion.
“The Reserve Bank of India will soon issue a notification to this effect,” a senior Government official told
However, the move may not immediately solve the domestic power equipment sector’s woes. The official also disclosed that so far, there has not been even a single proposal for ECB in yuan received by the Government. That is why it was reviewed in a recent meeting of high level committee, which accordingly decided to discontinue it.
Although the Government has always maintained that such borrowings were meant for all purposes, there was a widespread belief that this facility was introduced mainly for the power sector.
In fact, the original decision to allow yuan ECBs was taken considering the huge shortage of power in the country.
“Since power is a basic necessity and a national priority, it was considered important to support ECB in Chinese currency route for the import of capital goods for the power sector,” the official added.
ECB refers to commercial loans from overseas lenders. It can be in the form of bank loans, buyers’ credit, suppliers’ credit or securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible or partially convertible preference shares). The minimum average maturity of such loans is three years. ECB is usually considered cheaper compared with domestic loans.
In his letter to Subbarao, Patel had said, “It is apprehended that availability of long-term, low interest export credit from China will further distort the status in favour of Chinese manufacturers, who have already gained almost 50 per cent share in the Indian power generating equipment market.”
He further mentioned that this matter had already been taken up with the Finance Minister.
“I am bringing this to your notice, as the Master Circular No. 12/2012-13, dated July 2, 2012 on this subject has been issued by the Reserve Bank of India. I would request you kindly to look into the matter and consider withdrawal of the aforesaid circular for power plants with immediate effect,” he said.
Patel’s Ministry is the nodal one for the capital goods industry, which includes power generating equipment companies. Industry sources feel that cheaper imports, funded by cheaper finance for Chinese companies, are adversely affecting domestic manufacturing companies.
Meanwhile, domestic companies got some relief last year, when import duty was raised on imported equipment.