Strong checks on end use of funds, bond sales proposed.
The government is putting in place strong checks on end use of funds invested in the proposed infrastructure debt funds. Sale of infrastructure bonds bought by foreign entities in India would also face strict curbs.
In this year’s Budget, Finance Minister Pranab Mukherjee had said the government would facilitate setting up of infrastructure debt funds to attract foreign investment in the sector.
A senior finance ministry official said the scheme proposed by the Securities and Exchange Board of India (Sebi) was discussed yesterday. It was decided that the funds, regulated by Sebi, would have to certify that they were investing only in infrastructure projects, he said.
The Sebi scheme, on the lines of mutual funds, was set to be cleared in the next three-four days, he said. “Sebi wanted the finance ministry to put in place a mechanism to remove the possibility of wrongdoing,” he said.
| THE SAFEGUARDS |
| * Bonds bought by foreign entities cannot be sold in India |
| * Prompt reporting of investments to regulators |
| * Finance ministry to keep a watch on fund flows |
“It has been decided to ask the funds to submit investment statements to Sebi on a regular basis. These will be passed on to the finance ministry to check any possible misuse,” he said.
The official said there would be a provision for cancelling a fund’s licence.
Among other checks, foreign entities buying dollar-denominated bonds issued by infrastructure debt funds would not be allowed to sell these in India. This is being done to stop black money from entering the country. The official said overseas bonds would be bought and sold outside while the bonds issued in India would be traded only here.
He said both trusts and companies would be allowed to float infrastructure debt funds. Trusts floating units will be regulated by Sebi, while companies that issue bonds will work under the Reserve Bank of India (RBI) regulations. “Both the units and the bonds will be listed, so that they can be traded,” said the official.
The final contours of funds falling under the RBI purview are likely to finalised by the end of this month. “The notifications for both trust-handled and company-handled funds will be issued together,” said the official. This is expected in June.
