Finance Minister Pranab Mukherjee, in his budget for financial year 2009-10, said the government would increase investment in infrastructure sector to 9 per cent of gross domestic product by 2014.
“To stimulate public investment in infrastructure, we had set up the India Infrastructure Finance Company Ltd (IIFCL) as a special purpose vehicle for providing long-term financial assistance to infrastructure projects. We will ensure that IIFCL is given greater flexibility to aggressively fulfil its mandate,” Mukherjee said.
At present, the total investment in infrastructure — government and private sector — is about 4.5 per cent of GDP.
Mukherjee said the government would now introduce the ‘Takeout Financing’, an international practice of releasing long-term funds financing infrastructure projects.
“It can be used to effectively address the asset liability mismatch of commercial banks arising out of financing infrastructure projects and also to free up capital for financing new projects,” the finance minister said.
The government has decided that IIFCL will refinance 60 per cent of commercial bank loans for public private partnership projects in critical sectors over the next fifteen to eighteen months.
“The new mechanism will allow banks to lend for a longer period and this will lend a lot of flexibility to the banks and project developers,” said VD Mhaiskar, CMD, IRB Infrastructure Developers.