The standing committee on finance has cautioned the Centre against borrowing from abroad like the India Millennium Deposit without working out the cost of raising such funds.

It has also asked for quick implementation of the recommendations of the N K Singh committee on relaxing the sectoral limits on foreign direct investment, along with simplifying procedures and making the guidelines transparent.

In its 39th report on the demand for grants for the department of economic affairs tabled in Parliament today, the committee has also asked for amending the Banking Regulation Act of 1949 to give RBI powers over cooperative banks at par with commercial banks.

The committee has pointed out that of the total Rs 25,716 crore (Rs 257 billion) raised by IMD, for accelerating economic growth, only about 13 per cent or Rs 3,407 crore (Rs 34 billion) were used for financing projects.

The banks have used about 40 per cent of the funds for investment in government securities, while Rs 464.29 crore (Rs 4.64 billion) were the addition to the interest liability on the loans raised in 2000.

The Centre would begin repaying these loans in 2005-06. The committee said such high cost loans should be judiciously deployed in areas for which they were collected. The government should weigh the total costs of serving such funds against the benefits that are expected to accrue from these funds, before raising such loans.

On FDI, the committee chaired by N Janardhana Reddy has said there was a  need to broaden its definition as per IMF norms to include reinvested earnings by foreign companies, subordinated debt, and overseas commercial borrowings by foreign firms based in the country.

Taking note of the repeated scams in the cooperative sector the committee observed that on account of the duality of control on cooperative banks, RBI has no say regarding any adverse action to be taken against erring banks or its officials.

Therefore the present system has led to regulatory lapses. The standing committee has also endorsed putting a cap on the maximum investment that banks could make on government papers.

It says though banks have adequate liquidity, industry and other sectors are not getting adequate finance and have asked the RBI to issue guidelines putting a cap on SLR investments.

It has also said that since the banks have taken the easy way out of financing agricultural by investing in Rural Infrastructure Development Finance, no interest should be paid to them on such funds as penalty.