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Chasing dollars: India's projects increasingly funded by offshore borrowings

   Finance minister Nirmala Sitharaman on Tuesday pointed out to some green shoots in the economy.
While macroeconomic data is yet to pleasantly surprise markets, the minister isn't entirely wrong.
An article in the Reserve Bank of India's (RBI) monthly bulletin makes a similar optimistic case. The central bank believes private investment will improve judging by the financial sanctions for projects.
"The investment cycle appears to be poised to gain momentum in the short to medium term, but, its sustainability needs to be watched closely," said the RBI in an article in its monthly bulletin.
During the first half of the current fiscal year, 423 projects got funds totalling ?1.87 trillion from banks, financial institutions and foreign sources. This is an impressive increase of 47% from the corresponding period in FY19. The number of projects financed has, however, dropped by 13%.
The more interesting factor is the rise in foreign funding in the total capital expenditure towards projects. During the first half this year, over 60% of the finance came from external commercial borrowings. Low global interest rates and a general unwillingness of Indian banks to lend seems to be the reason behind this.
Even so, the share of banks in the sanctions towards projects remained high at 67%. Foreign money provided 33% of the total finance.
External commercial borrowings are a very popular and during calendar 2019 companies have borrowed a whopping $50 billion through this route. So long as global liquidity is copious and central banks are accommodative, this trend is unlikely to change.
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