INDIA eased overseas borrowing rules and allowed firms to raise as much as US$1 billion in yuan debt as higher local funding costs threaten to choke growth in Asia's third-biggest economy.

The government yesterday decided to raise the cap on foreign borrowings without approvals by 50 percent to US$750 million, and said it may permit the overall limit to exceed US$30 billion "on a case-by-case" basis, R. Gopalan, secretary in the Department of Economic Affairs in the finance ministry, told reporters in New Delhi yesterday. Companies building airports, roads, ports and power plants will benefit from the new rules, he said.

Prime Minister Manmohan Singh aims to double spending on infrastructure to US$1 trillion in the five years to March 2017 to accelerate growth to more than 10 percent and lift living standards in the nation. Eleven interest-rate increases by the Reserve Bank of India since March 2010 drove average five-year borrowing costs for top-rated local companies to an 18-month high of 9.78 percent on June 1.

"Including all hedging costs, there's still an arbitrage of 1 to 2 percentage points," said A. Issac George, chief financial officer at GVK Power & Infrastructure Ltd. "This will certainly help at a time domestic interest rates are threatening to hurt growth."

The economy may rise 8 percent in the year to March, according to central bank estimates, slower than 8.5 percent last year. Factory output grew 3.3 percent from a year earlier in July, the slowest pace in 21 months, according to data provided by the Central Statistical Organisation.

The extra yield firms need to pay for five-year debt over similar-maturity government securities has risen to 93 basis points from as low as 56 on December 6, data compiled by Bloomberg News showed.

Source:shanghaidaily