In the context of the External Commercial Borrowings, consider the following statements:

1. External Commercial Borrowings constitute the largest component of India’s external debt.

2. External Commercial Borrowings facilitate investments in the Indian stock markets.

Which of the statements given above is/are incorrect?

Solution

● Statement 1 is correct: According to Status Report on India’s External Debt 2021-22, released by The External Debt Management Unit (EDMU) India’s external debt stood at 620.7 billion USD by the end-March 2022. The major component of which was the External Commercial Borrowings followed by the NRI deposits. External Commercial Borrowings or ECBs are a part of the Capital Account of the Balance of Payment (BOP). ECBs are loans availed by Indian corporations and public sector Undertakings by foreign entities. ● Statement 2 is incorrect: The loans availed cannot be used for the investment in the Indian stock market and the speculation activities in the real estate sector. The regulation of the External Commercial Borrowings is done by the Ministry of Finance and the Reserve Bank of India.