The limits on ECBs imposed by the government have been generally welcomed. As Shankar Acharya points out in Business Standard, of the increase in the capital account surplus of $23 bn in 2006-07, ECBs accounted for $13 bn or nearly 60%. Unchecked ECB inflows have rendered exchange rate management that much more difficult.
It was another item in Acharya's article that took my breath away. The top 10 borrowers accounted for 30% of total approvals in 2006-07; around 20 corporates accounted for nearly half the borrowings. The two Reliance groups (of Mukesh and Anil Ambani) lead the field.
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The fact that a few borrowers account for the majority of the ECBs is what is likely to make the move ineffective. And they have the capex expenditures in forex to easily comply with the new rules. As usual it will be the small guy who will pay more as interest. So much for the stated intention of helping SMEs.
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