Abstract
The depreciation of currency expected to increase the cost of borrowing of the firms that denominate debt in foreign currency and thus adversely affect the investment and net worth of the firms. This study examines the effect of currency depreciation on investment of those firms that hold external commercial borrowings (ECB) in India. The sample data comprises non-financial firms for the period 2004 to 2015 and panel regression quantifies the balance sheet and competitiveness effect. This study does not find significant negative effect of rupee depreciation on investment of ECB indebted firms. This study shows that sample ECB firms have some natural hedge against exchange rate volatility. The performance of listed firms in terms of investment and income is better than that of unlisted firms. The findings of the study imply the effectiveness of current exchange rate regime and prudential norms laid by RBI for external commercial borrowings.
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