8th April

Time to ease ECB norms

The article strongly supports easing of borrowing norms for NBFCs so that they can have better access to the foreign capital to complete their infrastructure projects. 

Government and RBI has considered easing of borrowing norms for NBFCs that seek to raise debt from abroad to finance domestic infrastructure projects. While there is a sharp decline in the foreign debt inflows in India, it is important to mention that the extant policies for NBFCs are cumbersome and self-defeating. Recent measures by RBI to relax the rules were accompanied by inexplicable caveats as well. For example, the policy said that NBFCs can only borrow money from recognized multilateral financial institutions like World Bank, ADB etc and that these institutions should have extended a certain minimum amount already to the project in order to be eligible to fund NBFCs. This assumes unlimited corpus with the agencies that fund NBFCs. While agencies like ADB marginally exceeded the upper limit in lending last year, it renders such policies meaningless. Pretty much same is the case with other bilateral FIs. What is needed is more freedom to NBFCs to tap the global capital. Rating system for NBFCs by RBI would ensure that only serious players tap the international market. 

Finally, restrictive foreign borrowing policies were good at the time of excess capital inflows but in present conditions and considering future forecasts we are far away from that luxury.

Setback in steel

The article criticizes imposition of anti-dumping duty on stainless steel imports. Such duty would just increase the cost of manufacturing for domestic producers and in turn backfire and hit the industry itself. 

The Directorate General of Anti-dumping and allied duties (DGAD) in the commerce ministry has lost the bigger picture and not taken into consideration that such measures would increase costs, reduce output and invite retaliatory measures from our trading partners. In the condition when the global meltdown is there and the exports are declining, such duties only add up to the trade barriers. While the global steel prices are down, such duties remove the scope for reducing the domestic price cuts. DGAD has acted on the complaint of only one producer and hasn’t taken into consideration the whole industry. There is a serious need for producers to import requisite stainless steel and special grades since the country has an abysmal record in producing quality high grade steel. While poor domestic demand may be one of the reasons, the main reason is distortionary policy. As the domestic iron ore prices are as low as Rs.11 per tonne and captive mines are a norm, there’s a little incentive to move to high grade steel. 

There are other rigidities as well such as opacity in the steel policy. What is needed is to move out from such rigidities and promote steel import to move up in the value chain.