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Jul 12, 2012, 08.23 AM IST
RBI's move to increase the limit on external borrowing to USD 10 billion may not actually do much for the infrastructure sector as the overall investment sentiment regarding India deteriorates and attracting foreign funds gets harder.
As part of its combined effort with the government to curb the weakening of rupee, the RBI this week hiked the limit on external commercial borrowing for manufacturing and infrastructure companies to USD 10 billion. However, the sector is not expecting foreign funds to flood into the kitty of infra companies any time soon especially with the overall sentiment regarding India not being too bright at this point.
Madhav Nadkarni, CFO, Unity Infraprojects, says that we really think it may not really help because overall atmosphere in India is not conducive as far as foreign investors are concerned because lot of scams, lack of reforms are really hurting the sentiment and over and above there really is government paralysis.
But not all players are despairing. At a time when the sector is in a slow down and many companies are finding assets sales negotiations difficult to close. The government's move to allow replacement of high cost rupee debt by ECB has been welcomed by the industry.
V Ashok, CFO, Essar Group, says that the regulator has done a wonderful job. For groups like us which have a predominantly rupee balance sheet, because our capex and our borrowings are in INR, it's a very welcome step to swap these with dollar loans. Even though there are couple of concerns as we read the fine print of the guidelines, but I am sure this can be ironed out. Overall, according to me it's a very positive step.
But, the fact remains most Infra companies are cash strapped and going through hard times as their order flows stagnate and construction slows down. And while increasing the limit on external borrowing is a step in the right direction experts say the government needs to do more to fix the sector fundamentally.
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