Montek Singh Ahluwalia for several debt funds to build infrastructure sector

The Planning Commissions panel has asked the finance ministry to examine the possibility of setting up several Infrastructure Debt Funds (IDFs) to fund core sector development activities in the country, which are estimated to cost US$1 trillion during the 12th Five-Year Plan (2012-17).

Following up on the suggestions made during the recent visit of US President Barack Obama to India, Planning Commission deputy chairman Montek Singh Ahluwalia has written a letter to finance minister Pranab Mukherjee suggesting modification of the regulatory framework and also on the need to exempt IDFs from payment of withholding tax.

"It would be very good idea if we can have not just one debt fund... (but) several debt funds. In order to make it possible, you need several regulatory relaxations or modifications. I have sent a note to the finance minister giving my assessment. I believe that it is being examined in the finance ministry," Ahluwalia told reporters.

During Obama's visit last month, the governments of India and US gave in-principle approval to a proposal from the industry to set up a US$10 billion infrastructure fund.

Ahluwalia said India needed several debt funds to finance infrastructure sector activities in the 12th Five-Year Plan, as 50% of the total US$1 trillion investment required during the 2007-12 period would have to come from the private sector.

The Planning Commission deputy chairman also made out a case for exempting debt funds from payment of withholding tax, as the levy would make their operation unviable. Withholding tax is the amount that is required to be deducted by an entity while paying interest on borrowings.