Domestic pension and insurance funds may be allowed to park their money in infrastructure projects that need an estimated $1 trillion (about Rs45 lakh crore) over the next five years. The move is aimed at channelising household savings into the cash-starved sector.
"The high-level committee on financing infrastructure under former RBI deputy governor Rakesh Mohan may propose the entry of domestic pension and insurance funds to refinance existing infrastructure projects," a senior government official told HT. This, he said, would help resources of the banking system to finance new core sector projects.
The last few years have seenhuge investments in large greenfield projects in sectors such as power, telecom, railways, airports, roads besides shipping and ports."For all those infrastructure projects that have become operational and are generating adequate cash, it is being suggested that domestic pension and insurance funds be encouraged to refinance such completed projects," said a committee member.
Refinancing refers to paying off an existing loan with proceeds from a new loan, usually of the same size and using the same property as collateral. This could reduce the cost of money.
The committee is also examining all aspects of channelising a greater inflow of funds to finance India's infrastructure sector, the official said, adding that RBI deputy governor Subir Gokaran has agreed to convene a sub-group to examine the role of global capital flow in infrastructure financing.
The sub-group will access the nature of projects likely to receive such capital and consider how much financing can be obtained in a sustainable manner, " he said. The sub-group would also look at utilising the bond market for infrastructure financing.
Besides, another sub-group under Kotak Mahindra Bank's vice-chairman Uday Kotak along with members from the Department of Economic Affairs (DEA), RBI, Securities and Exchange Board of India (SEBI) and Goldman Sachs has also been set up to examine the flow of equity to infrastructure projects.
"This sub-group will study the actual size of private equity in infrastructure projects in the last 5 year of reforms, international practices and other relevant factors for making its recommendations," the committee member said.
Finance minister Pranab Mukherjee in his budget proposal for 2011-12 has increased the outlay for the infrastructure sector by 23.3% in 2011-12 to Rs214,000 crore, 48.5% of the plan expenditure.
The ceiling on foreign institutional investors (FII) investment in infrastructure bonds has been raised to $25 billion (Rs112,500 crore) from $5 billion (Rs22,500 crore).