Relax ECB norms for infra NBFCs

Hemant Kanoria, CMD, Srei Infrastructure Finance

2013 has been a bad year for infrastructure sector. Certain sectors like roads & highways have been hit hard in particular. Though power sector has been growing, it must be kept in mind that while coal continues to account for almost 60 per cent of power production in India, our domestic coal production is far below our potential. As a result, a substantial part of our coal requirement is met through exports. To compound the problems of infrastructure sector, the new Land Act would result in almost no land being available for private sector and even PPP projects. This is bound to drive up costs and make the business or infrastructure creation unviable. India's continuous reliance on monetary tools to rein in inflation has also led to increase of interest rates which have driven up costs, making many projects unviable. The combined impact of all these is felt by the commercial banking sector.

Another cause of worry is the new Companies Act. India is a land of entrepreneurs and the infrastructure sector has millions of entrepreneurs operating throughout the country. But with this new Act, business, both listed and unlisted, now need to adhere to such strict compliance norms that this will discourage new and existing enterprises, especially the small-time players. This is a major blow to entrepreneurism.

We have a long wish list. But very few got addressed in 2013. For example, keeping in mind that there is a serious need to explore alternative modes of resource mobilisation, both equity and debt, we have been asking for relaxation of external commercial borrowings (ECB) norms for infrastructure-financing NBFCs, especially the asset finance companies (NBFC-AFCs). However, although the ECB window has been widened to some extent, certain self-defeating end-use restrictions of the funds compromise its efficacy. AFCs are allowed to use ECB funds only for leasing of imported equipment. This defies logic when there is a growing domestic manufacturing base of infrastructure equipment. When ECB funds can be used for promoting domestic manufacturers, why should it be restricted to only imported equipment? In addition, the tax implications on leasing have largely made this instrument ineffective in India. Thus, instead of leasing, the ECB funds should be ideally used for financing of infrastructure equipment, both domestic and foreign.