ECBs: One step forward, one step back

By Sanjay Asher and Prerak Ved, Crawford Bayley & Co

Financing has two key components – long-term debt and short-term funds. In an ideal world, a person intending to raise debt finance would be able to raise it from any market that meets his needs of cost, time, repayment and other relevant factors.

Domestic debt financing in India, both short and long-term, is generally more expensive than overseas debt financing. Until the early nineties access to overseas debt markets was limited and subject to government approval. This was partly on account of foreign exchange restrictions and partly due to the protectionist approach towards the (then) lopsided and loss-making domestic banking system, which attempted to subsidize lending to priority sectors with lending to industry.

Liberalization of the economy first requires liberalization of its laws, and the laws in this regard have been significantly liberalized, making overseas debt financing a popular and viable, if somewhat controversial, option.

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Sanjay Asher is a partner with Crawford Bayley & Co, Prerak Ved is an associate.

Crawford Bayley & Co

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