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Govt plans big push for infra investment

The government is planning a raft of new measures to pitchfork investment in infrastructure to about 9 per cent of gross domestic product (GDP) in the next five years.

business Updated: Jan 26, 2010 21:20 IST
HT Correspondent

The government is planning a raft of new measures to pitchfork investment in infrastructure to about 9 per cent of gross domestic product (GDP) in the next five years.

The measures would include making it attractive for banks to lend to long gestation infrastructure projects, develop a deeper bond market powered with tax breaks and incentivise insurance companies park funds in infrastructure firms through debt instruments.

An estimated investment of $500 billion (Rs 23 lakh crore) is required to upgrade India’s roads, highways, ports, airports, power and telecom infrastructure in the next five years. This is more than 10 times the current level of investment in infrastructure projects.

Apart from making investment in infrastructure more attractive, the government is also planning to put in place an effective monitoring mechanism with stringent penal and regulatory powers to ensure timely execution of projects.

A senior government official, who did not wish to be identified, said the objective is to ensure that total investments in infrastructure projects reach a level of 9 per cent of the country’s gross domestic product by 2014.

At present, the total investment in infrastructure — government and private sector —is about 4.5 per cent of GDP.

The rising hesitation of banks to lend to infrastructure projects have rung alarm bells in the government as several critical current and planned projects could get delayed by several months for want of funds.

Data collated by the government have shown that banks are charging above 15 per cent interest rates for infrastructure projects. In the last one year, the effective interest rates for such projects have gone up by a at least couple of percentage points, an official said.

Banks are also stipulating variable interest rates format, even during period of construction of projects, exposing projects to severe interest rate risks during construction and a consequent risk of project financing.

“It is important to ensure that banks lend at a stable rate for infrastructure projects,” said the official.