Govt considers creating bank with $13.7 bn equity to fund roads, ports

The finance ministry has prepared a note for Modi's cabinet to discuss the proposal

The Centre is considering a proposal to create a bank to help fund port, road and power projects as Prime Minister Narendra Modi’s administration aims to lift Asia’s third-largest economy out of the recession.

The new entity, likely to be part of the Budget announcement in February, may have an equity capital of Rs 1 trillion ($13.7 billion), people with knowledge of the matter said, asking not to be identified as the matter isn’t public. The existing India Infrastructure Finance, which has a Rs 2,000 crore corpus, will be merged with the bank, they said.

Initially, the institution will be funded by the government, which will later invite investors, the people said. It could be on the lines of state-run National Investment and Infrastructure Fund, which counts the Canada Pension Plan Investment Board, Asian Development Bank and Abu Dhabi Investment Authority among its investors.

The finance ministry has prepared a note for the Cabinet to discuss the proposal. The spokesperson at the ministry declined to comment.

India faces the challenge of boosting spending on productive assets that aid economic growth after being forced to direct the bulk of stimulus last year on the poor and the farmers to protect them from a pandemic-induced slowdown. Citigroup economists wrote last year that spending should be directed on infrastructure, rather than populist measures, to cushion the economy headed for the deepest slump among emerging nations.

Attracting foreign investment is also crucial to meet Modi’s goal of spending $1.5 trillion on new roads, rail links and other infrastructure over the next five years as public finances deteriorate.

The government pumped nearly Rs 1.7 trillion into public sector banks in the two years to March 2020. But a widening budget deficit and weak revenue growth put a brake on any further recapitalisation plans for the current financial year.