The finance ministry is considering a proposal from Corporate India to accept China's currency Renminbi for overseas borrowings. This was one of the suggestions companies made in a meeting held by Finance Minister Pranab Mukherjee with industrialists on August 1.

The demand, according to bankers, is largely from power producing companies. Several companies including Reliance Power, Lanco, Adani Power, Jindal Steel & Power and GVK, have placed orders or are in the process of placing orders for power equipment from Chinese vendors. The country currently generates 1,80,358 MW and plans to add another one lakh MW during the next five years.

Finance ministry sources told The Indian Express that some companies have also suggested that the annual External Commercial Borrowing (ECB) limit be raised from $30 billion now. The decision to allow Renminbi along with raising ECB limits is likely to be taken at a high level committee meeting scheduled on September 15, the sources added.

Experts say the move to allow Renminbi ECBs, if allowed, will mainly benefit the power and telecom sector. There is a global shortage of dollar funding. Today, Indian companies are willing to borrow in a currency that is fast becoming international. However, the flip side is that they will be saddled with a liability which is not convertible. So that aspect has to be kept in mind, a banker said.

Further, the money borrowed doesn't flow into the country since Indian companies borrow from Chinese banks and pay to Chinese companies. Chinese firms have already started accepting payments in Renminbi. Also, companies need to hedge the risk and this will add to the borrowing cost. As a borrower, I don't see much benefit in this. I think it will mainly help power sector companies sourcing equipment from China, Hemant Kanoria, CMD, Srei Infrastructure Finance Ltd said.