India to curb foreign borrowing

Indian firms borrowed $16bn in foreign loans in the past year

India has set new limits on how much national firms can borrow from abroad, in a move to cool the rapidly expanding economy and calm inflation.

Indian firms wanting foreign loans of $20m (£9.8m) or more will need consent both for the loans and the right to bring the money into the country.

Increasing numbers of Indian companies have sought credit from overseas, where interest rates are lower.

In the 12 months to March, Indian firms borrowed some $16bn from abroad.

Currency impact

One side effect of higher inflows of foreign capital has been that the rupee has risen sharply, rising more than 10% in the past year, hitting a nine-year high in July of 40.20 to the dollar.

This has made it harder for exporters, whose goods have become relatively more expensive overseas.

The large inflow of foreign money into India has also pushed up prices domestically, making it harder for ordinary Indians.

Soon after the announcement, the rupee weakened marginally in early trade to 40.82 to the dollar.

Finance minister P. Chidambaram said the government was not favouring "a blanket ban" on overseas borrowing, which could harm small and medium-sized firms.

The new cap on borrowing is effective immediately but loans already agreed will be exempt.