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RBI Curtails NRI Deposits/ECBs to Check External DebtSaturday, May 05, 2007
The RBI has implemented protective measures to curb inflation in the last couple of months. The restraining arm on internal liquidity has been extended to the flow of external funds by cutting down on interest rates on NRE and FCNR deposits. Further precautionary measures by the RBI include raising the prepayment limit of external commercial borrowings. Prepayment up to USD 400 million is allowed to authorised dealer banks as against USD 300 million, provided they comply with the minimum average maturity period of the loan. These controls not only check on the liquidity, and thereby inflation, but also on the country's external liabilities. The latter has been disturbingly high at Rs. 6, 38,181 crore in September 2006, a jump of 16.4% over the previous year. External commercial borrowings and NRI deposits contribute to rising debt stocks, and once these are curtailed, the debt position would improve too. ECBs alone have contributed to 22% of the total outstanding in external debts. As for the composition of the ECBs, commercial bank borrowings accounted for 50%, and the rest was from securitized borrowings, including FCCBs. This reflects India being viewed favourably as an investment destination. However, the sharp increase in ECBs has led to a consequent rise in external debt, while NRI deposits and FC (B&O) have grown steadily. In five years between 2000 to 2005-06, NRI deposits have grown to 28% of the outstanding external debt, and stand at Rs1, 56,715 crore in 2005-06. The Indian Government's efforts to reduce external debt have been thwarted to some extent as ECBs and NRI deposits swelled. The government has restricted its own multilateral borrowings over the years, which declined from 28% in 1999-2000 to 23.7% in 2005-06. Bilateral borrowings of the government have also slipped by 4.5 percentage points to 9.7% in 2005-06, with much of the debt being a concessional one. Multilateral concessional debt of the government constituted 18.8% in 2005-06, with only 5% falling in the non-concessional category of loans. The bilateral loans however, are entirely of the concessional variety.
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