Recommending that a debt fund of Rs.50,000 crore be set up for financing infrastructure projects, an expert panel headed by HDFC chief Deepak Parekh asked the government to change rules to allow funding by pension and insurance companies.

The panel on the infrastructure debt fund has also urged the sectoral regulators — the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority (IRDA), and the Pension Fund Regulatory and Development Authority (PFRDA) — to tweak their existing laws to enable market players to use the large amount of untapped insurance and pension funds.

Such move would help reduce interest costs and hence cut user-charges since banks are not able to provide the required long-term funds for infrastructure projects, the report said.

In its report submitted to the Planning Commission, the Parekh Committee further suggested that the proposed infrastructure fund with an initial corpus of Rs.50,000 crore be set up as venture capital fund (VCFs) to be managed and regulated by SEBI.

For this purpose, SEBI should be asked to amend its guidelines for VCFs to enable investment in the debt market. At present, only a part of VCF is allowed to be invested in debt, the panel said.

The report also said pension and insurance money should be permitted to be invested in the fund to provide long-term financing to infrastructure projects coming under the public-private partnership (PPP) model.

The report suggested that the IRDA and the interim pension watchdog PFRDA be approached to modify the rules to enable these funds to invest in the infra fund.

Besides, the report recommended that foreign insurance, pension and sovereign funds be asked to invest in the proposed infra fund. For this, the RBI will have to be approached to create a special window for these kinds of foreign debt with tenure of 10 years or more.

Also, the multilateral agencies like the World Bank and the Asian Development Bank would be asked to invest in the fund.

Interest benefit

Explaining the recommendation of the committee, advisor to the Plan panel Deputy Chairman Gajendra Haldea said there would be cost advantages to all those PPP projects which would be financed by this infrastructure fund.

Since the fund would provide longer-term capital to infrastructure, the interest benefit a year could be around 2 per cent compared to banks loans, he said.

“This will help in not only reducing the costs of bid for various PPP projects by reducing the EMIs, but also in cutting the end-user charges,” Mr. Haldea said.

The report has also recommended that the income-tax department exempt interest income from the fund from withholding tax to woo foreign investors. Besides, the department should be asked to give other exemptions to returns on investment from the fund, the report said.

The report will be submitted by Planning Commission Deputy Chairman Montek Singh Ahluwalia to the Finance Ministry soon.

The recommendations of the Parekh Committee assume importance since infrastructure upgradation is required to sustain high economic growth and require $1 trillion during the XII Plan (2012-17).

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