Infrastructure debt gap $50 billion: Parekh panel

Lack of private investment in infrastructure projects has resulted in a debt funding gap of $50 billion (Rs2,34,373 crore) in the 11th Plan (2007-2012), according to the Deepak Parekh committee report.

This may delay the projects by around two years, estimates suggest.

While the government is planning to come out with an infrastructure debt fund to fill up this gap, the Parekh committee has suggested major changes in the external commercial guidelines that restrict the flow of foreign debt in the country.

The committee has asked the government to approach the Reserve Bank of India to create a special window for foreign debt with tenure of 10 years or more to enable the requisite flow of investment in the proposed Rs50,000 crore fund.

The proposed fund that seeks to tap the insurance, pension and provident funds in the country will require the government to approach Irda and PFRDA to make changes in their legislations to declare investments in such a fund as eligible investments.

The fund that is likely to be set up by the year end may also source around $2 billion from India’s forex reserves.

The government has also been advised to invite multi-lateral institutions such as International Finance Corporation and Asian Development Bank (ADB) as sponsors of the proposed fund.

International funding organisations such as World Bank and ADB would also be in the government’s scheme of things to raise resources for the infra fund.

The fund, likely to be set up by year-end, could issue bonds of up to Rs 20,000 crore to domestic insurance and pension funds in
multiple tranches over three years. The report has proposed that the fund may re-finance up to 85% of existing debt of an infrastructure project based on the public-private partnership model for at least 10 years.

The 11th plan has envisaged investment of 8.4% of the GDP by the fifth year of the plan in the infrastructure sector of the country.
The plan envisages that 36% of the total investment during the 11th plan would be mobilised from the private sector as against 25% achieved in the 10th plan. To make the investment in the proposed debt fund risk free, the government will provide a comfort letter to all lenders to the effect that it will provide assistance and support to the fund to recover its dues from the respective project authorities.