Misplaced optimism spurs easier spectrum fee loans

The Indian economy, while having shed much of its socialist baggage towards the close of the twentieth century, still believes in closely monitoring certain key components of its monetary system. Management of foreign exchange reserves is one example of this, with the external commercial borrowing (ECB) policy placing several restrictions, such as limiting permissible end uses, on securing loans from abroad.

Policy amended

However, the ECB policy is not set in stone and is subject to review by the government, in consultation with the Reserve Bank of India (RBI) – the nation’s central bank – which calibrates the existing policy in light of the prevailing macroeconomic environment. This was done early this month when the Ministry of Finance announced amendments to the current ECB policy in the context of the auction of 2G spectrum to be conducted under the aegis of the Department of Telecommunication.

Before the amendments, the ECB policy listed payment for spectrum allocation as a permissible end use under the automatic route (not requiring permission of either the government or the RBI).

Sawant Singh is a partner and Davis Kanjamala is an associate at the Mumbai office of Phoenix Legal.