The government is likely to announce a fresh set of tax exemptions to trigger investments in the large infrastructure projects aimed at channelising household savings in the cash-starved sector.
The high-level committee on financing infrastructure headed by former Reserve Bank of India (RBI) deputy governor Rakesh Mohan is currently drafting interim recommendations on specific instruments bundled with tax incentives.
The planning commission has asked the committee, which held its first meeting on December 15, to submit its report by month-end. These will then be submitted to the Prime Minister and finance minister for incorporation in the budget proposals for 2011-12.
"On taxation front there was a need to look at international best practices for creating credible tax policies in India for triggering more investments," said a senior official, who is part of the committee.
The government is also looking innovative options of debt financing to enable companies to fund new infrastructure projects. An estimated $1 trillion (about Rs45 lakh crore) would be required to fund India’s infrastructure projects during the 12th plan period (2012-2017). About half of these investments would have to come from the debt market through bonds.
The committee will also look into the extent to which the estimated debt component of about Rs24 lakh crore could be effectively financed through the domestic banking and financial system as a whole.
"It is vital to create an enabling macro environment where a strong bond market can flourish among other instruments and household savings can also be tapped effectively besides attracting foreign investment," the official said.
Funding infrastructure through foreign debt through international currency involves a lot of systemic uncertainties prompting demand for abolishing all controls on rupee denominated foreign debt for infrastructure projects. "There has also been considerable pressure to relax exposure norms of banks to enable them to finance infrastructure," said the official.
The committee will submit both the taxation and debt related recommendations to planning commission deputy chairperson Montek Singh Ahluwalia by the end of this month.