Why there is need for external commercial borrowings in india?

Question

why there is need for external commercial borrowings

what are the advantages of external commercial borrowings

what are the disadvantages of external commercial borrowings

Answer 1

External Commercial Borrowings (ECB) are just another source of funding. Straight to your points in brief:

Need: When funding is required, ECBs are availed - normally huge amounts for import of capital goods, raw-materials, overseas acquisitions, technical know-how import and even for domestic operations. Even small borrowings like 1 million US $ equivalent are also available in the market but exercise works out better for medium to large amounts.

Advantages: They work out to be a cheaper source of finance and faster to release/avail comparing domestic sources.

Disadvantages: Not really any; however if the borrower's country is facing foreign exchange crunch, it becomes difficult to pay back the borrowings and interest thereon on due dates.