RAS question
Under FEMA 1999, External Commercial Borrowings (ECBs) CANNOT be used for which purpose?
Correct answer: (B) Real estate speculation.
Under RBI's FEMA-based ECB framework, External Commercial Borrowing proceeds cannot be used for real estate activities, so real estate speculation is the barred purpose.
Explanation
RBI's Master Direction on External Commercial Borrowings places end-use restrictions on ECB proceeds through a negative list. ECB proceeds cannot be utilised for real estate activities, along with investment in the capital market, equity investment, and on-lending for such barred activities. Real estate speculation is therefore the prohibited use. The rule is not a blanket ban on borrowing for business needs: the same framework recognises ECB parameters such as maturity and specifies exceptions for uses like working capital, general corporate purposes, and repayment of Rupee loans only in defined cases. The exam point is therefore the negative-list item, not a rule treating every commercial or project-related use as banned.
Why the other options are wrong
- (A) Infrastructure development is not the barred option because RBI's ECB end-use restrictions bar real estate activities, capital-market investment, equity investment, and specified restricted uses, not infrastructure development.
- (C) Project financing is not prohibited under RBI's ECB negative list; the relevant prohibition is real estate activity.
- (D) Capital expenditure is not the negative-list answer: the RBI framework separately refers to Rupee-loan repayment for capital expenditure under specified maturity conditions, while real estate activities are expressly barred.
Concept
External-sector regulation in Indian Economy includes how FEMA and RBI directions control foreign borrowing by Indian entities. ECB rules recur in RAS because they link balance-of-payments management, corporate finance, and regulatory safeguards.