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External Commercial Borrowings (ECBs) have become increasingly popular among Indian businesses in recent years as a means of financing their expansion, investments, and strategic initiatives in the global financial landscape. The rising levels of external debt resulting from ECBs can have a significant impact on India’s fiscal policy, potentially leading to higher budget deficits or reduced government spending in other areas. The effect of the ECB on the Indian economy can vary across different sectors and industries. Some sectors, like infrastructure and manufacturing, may benefit from ECBs, while others, such as real estate and consumer goods, may face risks associated with excessive borrowing. As the Indian economy continues to evolve, ECBs play a crucial role in shaping various aspects of the economy, including investment, inflation, exchange rates, and monetary policy.


As per the Reserve Bank of India’s (RBI) Master Direction on External Commercial Borrowings, 2019, “External Commercial Borrowings (ECB)[1] refer to commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds)] availed of by eligible borrowers from recognized non-resident entities such as foreign banks and other financial institutions, and/or raised in overseas capital markets. ECBs include commercial borrowings and short-term credit including trade credit, inter-corporate borrowings by eligible borrowers, and rupee-denominated bonds subscribed by non-residents in accordance with the ECB framework.”

ECB pertains to the financial mechanism of raising commercial loans by Indian businesses to raise capital from international markets. These commercial loans are granted in foreign currency as well as in Indian Rupees and are typically utilized to fund expansionary activities, such as augmenting current capacity or initiating fresh investments. ECBs provide an attractive source of funding as they often come with lower interest rates and longer repayment tenures than domestic borrowing options. It can be availed by both private and public sector entities subject to certain restrictions and regulations set by the country’s central bank or regulatory authority namely RBI.


ECBs have emerged as a prominent financing instrument for Indian Businesses in recent years. As India’s economy expands at a fast pace, there is an escalating demand for substantial capital investments to support new projects, expand business operations and upgrade infrastructure. Companies seeking to enhance their capital optimization often find ECBs an appealing financing choice due to the reduced interest rates associated with them.

Some of the key ways in which ECBs are important for the Indian economy[2]:

  1. Lower interest rates: Interest rates impact borrowing costs and overall capital for businesses. If ECB rates are lower, it can reduce borrowing costs for Indian companies, leading to increased investments.
  2. Increased foreign investment: ECBs attract foreign investment, bringing benefits like advanced technology, knowledge, and skills. This can drive innovation, improve efficiency, and upgrade production processes in India.
  3. Diversified funding sources: Indian companies can reduce dependency on domestic banks by diversifying funding sources through ECBs, mitigating risks associated with a concentration in the domestic market.


While ECB can provide access to foreign funds for economic development, it also poses several risks and negative impacts. ECB can also pose risks to financial stability. Large inflows of foreign funds can create liquidity in the domestic financial system, which can lead to excessive lending and borrowing, speculative activities, and asset price bubbles. Some key negative impacts[3] on the Indian economy –

  1. Constrained liquidity: Relying on ECB for funds can limit liquidity in the Indian economy. Borrowing foreign currency from international markets reduces the availability of domestic funds, straining liquidity dynamics.
  2. Exchange rate fluctuations: Fluctuating exchange rates can impact macroeconomic stability. A sudden depreciation of the Indian rupee can lead to inflation, driving up costs of imported goods and services, and reducing consumers’ purchasing power.


India’s External Commercial borrowing has been a crucial indicator of the nation’s economic landscape, providing valuable insights into the borrowing activities of Indian companies and organizations. As per the latest data by CEIC[4], in January 2023, India’s ECB was reported at a modest 1.774 USD billion, evincing a decline from the preceding month’s 2.768 USD billion. The monthly ECB data, with an average of 1.887 USD billion from January 2004 to January 2023, highlights the volatility of this economic indicator.

The historical data[5] reflects significant fluctuations in India’s ECB over the past three decades. Following the initial years of liberalization, there was an upward trajectory in ECB until 1999, ostensibly due to policy reforms that widened the purview for overseas borrowings by corporate entities. However, the global financial crises and subsequent geopolitical events caused disruptions, leading to fluctuations in ECB flows till 2005. In 2019, Indian companies, predominantly large corporates, and oil marketing companies procured a record-high of US$ 41.07 billion, registering a remarkable surge of 58 percent from the preceding year 2018. The ECB inflows in recent years have been dominated by sectors such as financial services, petroleum and petroleum products manufacturing, ferrous (iron and steel), telecommunication services, and power generation, transmission, and distribution. Numerous factors contribute to the fluctuations in India’s ECB, including global economic conditions, foreign exchange rate volatility, interest rate differentials, and geopolitical issues. The recent downturn in ECB in January 2023 can be attributed to the impact of the ongoing COVID-19 pandemic The recent decrease in ECB in January 2023 may be attributed to the impact of the ongoing COVID-19 pandemic on global economic conditions which can make borrowing in foreign currencies more expensive for Indian companies.


ECBs have played a crucial role in driving India’s economic growth in recent years. However, the Indian government and the Reserve Bank of India (RBI) have also recognized the risks associated with a high level of external debt. To balance the benefits of ECBs with the need for prudent debt management, the Indian government has implemented several regulations on ECBs. These regulations play a crucial role in guiding the inflow and utilization of foreign borrowings by domestic entities, ensuring that borrowing is carried out responsibly and in line with the country’s economic goals.  These include-

The regulatory framework for ECBs in India aims to balance economic growth with prudent debt management. Under the automatic route[6], eligible borrowers can raise ECB to USD 1.5 billion per financial year, subject to a liability-equity ratio of 7:1. The Minimum Average Maturity Period (MAMP)[7] for ECBs is generally set at 3 years, but varies for specific categories, ranging from 1 to 10 years.  For example, manufacturing companies can raise ECBs to USD 50 million with a MAMP of 1 year, while ECBs for working capital purposes, general corporate purposes, or repayment of Rupee loans have a MAMP of 5 years. There is a negative list[8] of utilization, including restrictions on real estate activities, investment in the capital market, and equity investment, among others. These measures manage risks associated with ECBs, promote productive use, and safeguard against potential risks.


Although ECBs have been an attractive source of financing for the Indian economy, their impact has been both positive and negative. While ECBs have served as a crucial source of capital for vital sectors such as infrastructure, manufacturing, and services, propelling economic growth. On the other hand, the escalating dependence on foreign debt has also made the economy susceptible to exchange rate volatility and the risks associated with debt servicing. It is therefore imperative for policymakers to carefully balance the benefits and risks of the ECB to ensure sustainable economic growth.

Author(s) Name: Neha Gandhi (Guru Gobind Singh Indraprastha University)


[1] ‘MASTER DIRECTIONS’ (Reserve Bank of India, 30 September 2022) < > accessed 4 April 2023

[2]  Partha Ray ‘India’s External Commercial Borrowing: Trends, Composition, and Determinants’ (2017) Indian Institute of Management Calcutta Research Paper 11/2017 < > accessed 05 April 2023

[3] Swami Prasad Saxena, ‘Dynamics of external commercial borrowings in India’ (2020) 2(2) IJFTIB 16

[4] India External Commercial Borrowings <> accessed 5 April 2023

[5] Swami Prasad Saxena (n 3)

[6] Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations 2019, 2.2

[7] Ibid 2.1 (v)

[8] Ibid 2.1 (viii)