In order to improve the business of Indian companies manufacturing capital goods, the Heavy Industries Ministry has asked the Reserve Bank of India (RBI) to withdraw the permission for external commercial borrowings (ECBs) denominated in Chinese currency, for power plants, which will help domestic power generation equipment manufacturers like BHEL, and L&T to compete with cheaper Chinese imports. Currently, Indian companies, in power and other permitted sectors, can raise ECB up to an equivalent of $1 billion denominated in renminbi (RMB).
Earlier, in July 2012, the central bank has permitted ECB from China in their currency. Further, it is expected that the availability of long-term, low interest export credit from China will further distort the status in favour of Chinese manufacturers, who have already gained almost 50 per cent share in the Indian power generating equipment market.
Heavy Industries Minister Praful Patel has also suggested the RBI for providing finance to the domestic industry on the same rates as Chinese export credit, if the ECB circular is not withdrawn. This move would level the playing field with respect to the finance cost and will certainly help the domestic players to compete effectively vis-à-vis their foreign counterparts.
Moreover, the industry is of the view that earlier it was cheaper imports mainly from China and now cheaper finance for Chinese companies are making things very difficult for domestic manufacturing companies. Meanwhile, domestic players got some relief last year when import duty was raised on imported equipment. However, the problem has not been solved completely as various companies have been expanding capacity for manufacturing steam generators and turbine generators and there is fear that the gap will increase due to sluggish growth of power sector.
