The Centre said it aims to slow down flow of foreign debt into the real estate sector through its recent curbs on External Commercial Borrowings (ECBs).
NEW DELHI: The Centre on Monday said it aims to slow down flow of foreign debt into the real estate sector through its recent curbs on External Commercial Borrowings (ECBs). The finance ministry on Friday had barred those settingup integrated townships from raising ECBs and made it difficult for small players to raise these borrowings by lowering ceiling on interest rates to be paid on such debts.
“Now the window has been narrowed down. We hope that flow of external debt to real estate sector will slow down,” finance Minister P Chidambaram told reporters here.
He, however, declined to make any comment, when asked whether further curbs on overseas funds are in the offing.
Currently, real estate companies are already barred from mopping up ECBs, but integrated townships do not come under the definition of these companies hitherto for this purpose.
Integrated townships are those which are built on at least 100 acres of land.
Sources said the government is apprehensive about excessive external funds raised by smaller players in real estate sector, where prices have almost doubled in past two years. Further, excessive flow of funds also impacts inflation, they said.
In fact, debt raised by the Indian companies through ECB is now estimated to have reached $24 billion dollars during last fiscal, which is substantially higher than the internal cap of $22 billion put up by the government.
According to figures released by Reserve Bank, about 812 companies have raised about $20.24 billion through ECBs during the April 2006-February 2007 period.
Bankers said excessive inflow of dollars due to heavy borrowings by the companies through ECB have created problems for the Reserve Bank to contain inflation as well.
The government is finding it difficult to contain the flow of external debt as majority of the capital raised abroad comes through the automatic route.
Domestic companies are finding it convenient to raise funds overseas especially after rise in interest rates in domestic market. The difference in rates at which Indian companies access credit in domestic market and overseas is as high as 3-4%.
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