The National Highways Authority of India (NHAI) is keenly looking forward to the Planning Commission's proposal to allow even private players to raise money from the markets through infrastructure bonds to the tune of about Rs. 50,000 crore.

NHAI Member, Finance, J. N. Singh, maintained that the road sector would be among the major beneficiaries as and when the Planning Commission and the Union Government cleared the proposal allowing the private enterprise for the first time to issue tax-free infrastructure bonds.

In the wake of Finance Minister Pranab Mukherjee's announcement in his budget speech that investment by individual tax assessees up to Rs. 20,000 per annum in long-term infrastructure bonds would qualify for tax exemption over and above the existing limit of Rs. 1 lakh on tax savings, the Planning Commission has come up with Issues Paper for consideration.

According to the paper, tax exemption can be of three types — capital investment as well as the interest are tax exempt as in the case of provident fund, capital investment is tax exempt but interest is not as in the case of certain bank deposits and only interest is tax exempt as in the case of tax-free bonds.

While virtually ruling out the first option of allowing tax exemptions on capital and the interest earned on it, the Planning Commission has favoured the last two options and eventually roots for the third option, because it allows an assessee to invest up to Rs. 2 lakh in the first year itself and claim exemption on the interest income up to Rs. 20,000 per annum.

There will be no difference in revenue loss to the government, but the third option would help mobilise a much larger volume of household savings and also accelerate the development of the bond market.

The paper advocates against the setting of a lock-in period as it would affect liquidity and sees no advantage in including commercial banks under this scheme to raise funds particularly because it doesn't guarantee credit to the infrastructure sector.

Noting that there were over one crore investors in the equity market, the paper lays stress on allowing private companies, particularly the ones which invest in infrastructure projects, to issue such bonds. To safeguard investors' interests, only ‘AAA' or ‘AA” rated companies may be allowed to issue the bonds, the paper suggests, besides permitting infrastructure SPVs (special purpose vehicles) with similar ratings.

Mr. Singh said that private players engaged in the road sector would be the major beneficiaries besides those in the power sector as the PPP (public-private partnership) mode in these two areas had made strident progress. He stressed that the scheme was basically for the benefit of private companies.

Without commenting on which of the three options was welcome, Mr. Singh said that the fact that it would make funds available was wonderful. He, however, regarded as relatively less the amount of Rs. 50,000 crore being aimed to be raised through these bonds. For a beginning, it, however, was comforting, he added.

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