The new year began with a big bang for start-ups in India. The Government of India announced a new strategy to support start-ups. A detailed action plan in this regard has been prepared by it. The Government has taken various measures to improve the ease of doing business and is also building an exciting and enabling environment for start-ups with the launch of the “Startup India” movement. While this may not have immediate impact, the mammoth investment outlay and magnitude of infrastructure set-up required to establish and execute this ambitious plan, will surely open up new avenues for foreign investment.

The policy with respect to external commercial borrowings has been completely overhauled towards the end of last year. The new framework seeks to revise the existing framework keeping in view the macro-economic developments and the experience gained in administering the External Commercial Borrowing (ECB) regime over the last 10 years.

Rationale For the Changes – The overarching principles of the revised framework are:

(i) A more liberal approach for (a) long term foreign currency borrowings as the extended term makes repayments more sustainable and minimises roll-over risks for the borrower; (b) Indian Rupee (INR) denominated ECBs where the currency risk is borne by the lender.

(ii) Sovereign Wealth Funds, Pension Funds, insurance companies included in list of overseas lenders.

(iii) Reduced list of non-permissible end-use restrictions applicable to long-term ECBs & INR denominated ECBs.

(iv) Small value ECBs with Minimum Average Maturity of 3 years given a boost with increase of limit to USD 50 million from the existing USD 20 million.

(v) List of infrastructure entities eligible for ECB aligned with Harmonised List of Government of India (vide Notification F. No. 13/06/2009-INF dated March 27, 2012 as amended / updated from time to time).

Tracks Introduced – The revised ECB framework will comprise the following three tracks:

Track I : Medium term foreign currency denominated ECB with MAM of 3/5 years
Track II : Long term foreign currency denominated ECB with M
Track III : Indian Rupee denominated ECB with MAM of 3/5 years

There are a number of parameters to be considered as a whole while taking this route of borrowing. As against a single list of parameters for all types of ECBs in the earlier regulations, the following parameters are separately classified for individual tracks:

  • Minimum Average Maturity (MAM) Period
  • Eligible borrowers
  • Recognized lenders/investors
  • All-in-cost
  • Permitted end-uses

The compliance requirements are different for each of the above parameters in the individual tracks. Further, there are notes below the parameters for specific situations.

Cut-off Time For Switchover – A transitional period upto March 31, 2016 has been allowed to ECBs contracted till commencement of the revised framework and in respect of special schemes which are to end by March 31, 2016. Entities raising ECB under extant framework can raise the said loans by March 31, 2016 provided the agreement in respect of the loan is already signed by the date the new framework comes into effect. For raising of ECB under the following carve outs, the borrowers will, however, have time up to March 31, 2016 to sign the loan agreement and obtain the Loan Registration Number (LRN) from the Reserve Bank by this date:

  • ECB facility for working capital by airlines companies;
  • ECB facility for consistent foreign exchange earners under the USD 10 billion Scheme; and
  • ECB facility for low cost affordable housing projects (low cost affordable housing projects as defined in the extant Foreign Direct Investment policy)

Overview – The revised framework has been devised to make it in line with various Government initiatives to make India an improved destination for foreign investment. However, its success will depend on the manner in which it is utilised by the intended users (new or existing) as well as effective implementation by the authorities. Further, in view of the categorisation of ECBs into tracks, it becomes critical to understand the category applicable to a given loan or situation, so that the corresponding compliance can be undertaken. As it was with the previous framework, the primary responsibility for ensuring that the ECB is in compliance with the applicable guidelines is that of the borrower concerned.

The guidelines have a sunset period of one year after which it will be reviewed on the experience and evolving macro-economic situation.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra, India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel in Delhi, India; views expressed are personal; he can be reached at; Twitter: @sourish247

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