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Unit 3: Planning and Economic Development in the Era of Globalisation

11. The ……………………-growth has been on the average 6 per cent per annum during the Notes
last decade.
12. …………………… Model has followed the IMP-World Bank prescription of stabilisation
and structural adjustment.

Task Prepare a report on the impact of recent developments on Indian economy.

Case Study RBI Slapped ` 125 Crore on Reliance Infrastructure:
A Case Study on FEMA

he Reserve Bank of India (RBI) has asked the Anil Dhirubhai Ambani Group firm,
Reliance Infrastructure (earlier, Reliance Energy), to pay just under ` 125 crore as
Tcompounding fees for parking its foreign loan proceeds worth $300 million with
its mutual fund in India for 315 days, and then, repatriating the money abroad to a joint
venture company. These actions, according to an RBI order, violated various provisions of
the Foreign Exchange Management Act (FEMA).
In its order, RBI said Reliance Energy raised a $360-million ECB (External Commercial
Borrowings) on July 25, 2006, for investment in infrastructure projects in India. The ECB
proceeds were drawn down on November 15, 2006, and temporarily parked overseas in
liquid assets. On April 26, 2007, Reliance Energy repatriated the ECB proceeds worth $300
million to India while the balance remained abroad in liquid assets.
It then invested these funds in Reliance Mutual Fund Growth Option and Reliance Floating
Rate Fund Growth Option on April 26, 2007. On the following day, i.e., on April 27, 2007,
the entire money was withdrawn and invested in Reliance Fixed Horizon Fund III Annual
Plan series V. On March 5, 2008, Reliance Energy repatriated $500 million (which included
the ECB proceeds repatriated on April 26, 2007, and invested in capital market instruments)
for investment in capital of an overseas joint venture called Gourock Ventures based in
British Virgin Islands.
RBI said, under FEMA guidelines issued in 2000, a borrower is required to keep ECB funds
parked abroad till the actual requirement in India. Further, the Central Bank said a borrower
cannot utilise the funds for any other purpose.
“The conduct of the applicant was in contravention of the ECB guidelines and the same are
sought to be compounded,” the RBI order signed by its Chief General Manager Salim
Gangadharan said.

During the personal hearing on June 16, 2008, Reliance Energy, represented by group
Managing Director, Gautam Doshi and Price Waterhouse Coopers Executive Director,
Sanjay Kapadia, admitted the contravention and sough compounding. The company said
due to unforeseen circumstances, its Dadri power project was delayed. Therefore, the ECB
proceeds of $300 million were bought to India and was parked in liquid debt mutual fund
schemes, it added.
Rejecting Reliance Energy’s contention, RBI said “it took the company 315 days to realise
that the ECB proceeds are not required for its intended purpose and to repatriate the same
for alternate use of investment in an overseas joint venture on March 5, 2008”.
Contd...

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