With the onset of the financial crisis, India has opened up to External Commercial Borrowings (ECB). Corporate entities raised ECBs and FCCBs as liquidity was ample in global markets and interest rates were lower than Rupee borrowing costs.
Anecdotally, most of the Indian Companies' ECBs raised were converted from floating to fixed rate as there were fears that the interest-rate cycle in the rest of the world could turn. However, to gain the maximum benefit of lower borrowing rates, most ECBs were exposed to currency risks. Thus, the Rupee outgo for companies on maturing ECBs, with the recent sharp depreciation, could be large denting the profits.
One of the strategies to attract more capital has been to progressively raise the FII debt limit. While this helped, in phases, to contain volatility in the USD/INR, recent talks of the Fed’s QE withdrawal led to a sharp sell-off in the instruments by FIIs (outflow of US$6.8 bn over May 22-June 27). Weak economic fundamentals and consistent Rupee depreciation pressure could limit future FII investment in these securities.
The Corrupt Congress Government with its eye on 2014 Elections is Spending money Directly on the Rural illiterate Voter providing him FREE FOOD ignoring Infrastructure & Other Development Works which has led to Massive Withdrawal of money from India by Foreign Investors leading to Indian Currency Crisis as the Rupee Hit an all time Low of 61.20 against USD.
