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Construction, IT, Steel, Aviation and Auto sectors which were among the top External Commercial Borrowings (ECB) raisers in the first eight months of 2007 have registered the steepest decline in the corresponding period of 2008 as global liquidity pressure, recession in the developed countries and domestic demand slowdown took toll on the fund raising capacity of the Indian industry.

The ASSOCHAM Eco Pulse (AEP) Study on ‘External Commercial Borrowings – A Sectoral Analysis’, among the sectors which were the top borrowers of offshore funds in 2007, those which have recorded maximum decline in the ECBs include construction (-97.34%), IT (-95.5%), Steel (91.63%), aviation (-86%), auto and auto components (-78%).

The other sectors to have recorded high rate of decline in ECBs include financial services (-46.6%), pharma (-40%), oil exploration and refining (-35.6%).

The ASSOCHAM has also revealed about the declining feasibility of External Commercial Borrowings among the industry for the purpose of fund raising as they have steeply reduced by 35.74% from $21.45 billion during April to November 2007 to $13.78 billion in the corresponding period of 2008.

Out of the 51 sectors tracked by the AEP, 36 sectors have recorded decline in the foreign borrowings. The number of companies going for the offshore borrowing route has declined by 19.5% from 429 to 345 for the eight month period.

“We have urged the government to raise the present limit of USD 50 million for Rupee expenditure of the external commercial borrowings to USD 100 million to relieve the industry marred by domestic credit squeeze, global liquidity pressure, recession in the developed world and internal demand slowdown”, said D S Rawat, Secretary General, ASSOCHAM.

In view of the slowdown in the construction activity led by upsurge in interest rates, the foreign borrowings in the sector dipped by 97% and came down to USD 21 million from the previous USD 791 million.

The growth rate came down to 9.7% in the second quarter of the current fiscal from 11.4% in the first quarter and in contrast to 11.8% in the similar period of the financial year 2007-08.

The IT and ITes sector which heavily depends upon the US, UK and rest of Europe for its revenues, has been major problems due to recession in the developed economies. As the expansionary plans in the Sector were put on hold, the fund raisings by the companies also fell.

This was evident by 95% fall in the ECBs raised during April to November 2008 amounting ton mere USD 23.3 million by two companies, as against the 12 IT firms raising USD 527.4 million foreign debt.

Plagued by demand slowdown in exports and domestic usage in construction, consumer durable and auto segments, the Steel industry has recorded steep fall in the external debt raised through ECB route. Amount raised by Steel companies fell to USD 262 million during the first eight months of the fiscal as compared to USD 3.12 billion raised in corresponding period of the last financial year. This is almost 91% decline in the borrowed funds.

There were 27 steel companies which raised ECBs in 2007 as the sector was witnessing huge demand with booming economy. The number reduced to nine in the year 2007.

The aviation sector which suffered huge losses in the year 2008 due to rise in fuel prices and demand slowdown, witnessed a major downturn in the amount of external commercial borrowings availed by the sector. The ECB amount raised in the civil aviation sector during April to November 2007 was USD 4.16 billion which fell to mere USD 585 million, hence recording 85% fall.

The domestic air traffic fell by 4.1% during April to August 2008, while in the months of July and August the fall was much steeper at 14.9% and 17.1% rate.

The automobile sector has been feeling the heat of demand slowdown primarily due to hike in interest rates brought about by the Reserve Bank of India between October, 2006 and July, 2008.

The automobile sector including the ancillaries and auto component segments, had raised USD 1.331 billion during April to November 2007 which dropped by 78% as the ECB amount fell to mere USD 290 million in the corresponding period of FY2008-09.

Sectors with maximum decline in ECBs

 Source: ASSOCHAM

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