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Web Exclusive | May 2013

Ministry wants RBI to undo Chinese loan facility to power sector

Reserve Bank of India (RBI) received a request from the union heavy industries ministry to withdraw the permission for external commercial borrowings (ECBs) denominated in Chinese currency, for power plants.

The ministry fears that availability of long-term, low interest export credit from China will further distort the status in favour of Chinese manufacturers.

It may be noted that Chinese manufacturers have already gained almost 50 per cent share in the Indian power generating equipment market.

Recently, the ministry wrote a letter to the RBI Governor D Subbarao seeking withdrawal of the facility. It may be recalled that in July 2012, the central bank allowed External Commercial Borrowings (ECBs) from China in their currency.

Consequently, Indian companies, in power and other permitted sectors, can raise ECB up to an equivalent of $1 billion denominated in renminbi (RMB).

If the request is approved, such a move will help domestic power generation equipment manufacturers like BHEL, Alstom, L&T besides others, compete against cheaper Chinese imports, the ministry argues.

The ministry also suggested providing finance to the domestic industry on the same rates as Chinese export credit, if the ECB circular is not withdrawn.

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