India and the US are working to jointly set up a $10-billion infrastructure debt fund to finance large road, port and railway projects through public-private partnership (PPP).
“Both the countries have yet to take a final view on this. It has been agreed in principle that the governments will be fully supportive of the recommendations of the India-US CEOs’ Forum,” Commerce & industry minister Anand Sharma said on the sidelines of a conference jointly organised by Confederation of Indian Industry and US India Business Council.
Finance Minister Pranab Mukherjee and US Treasury Secretary Timothy Geithner are in discussions on modalities for the infrastructure debt fund, Sharma added. The idea of a fund was mooted by the 24-member Indo-US CEOs’ Forum earlier this year.
Planning Commission Deputy Chairman Montek Singh Ahluwalia, who is looking into the recommendations of the forum, said setting up the fund was still being negotiated between the two governments.
The fund, as proposed by the Planning Commission in February and suggested by the Parekh expert panel, is intended to address a critical need of infrastructure companies in India, which currently lack access to 10- and 20-year funds for long-gestation projects like airports, ports and roads. It would cater to the needs of projects that have already begun commercial operations.
The fund could earn a long-term spread of around 100 basis points above its rate of borrowing. The margin could be used to meet operating costs and liabilities of non-performing assets. The rate could be higher depending on the risk perception associated with each project.
“It has a lot of promise. But it will help catalyse regulatory changes that will deepen financial markets,” Geithner told the CEOs’ conference later in the day.
The government is looking at an investment of $1 trillion in the country’s infrastructure sector during the 12th Five-Year Plan period that starts in April 2012.
A large part of this will come from the private sector, with foreign investments also expected to play a large role.
There are already signs of greater foreign participation in the infrastructure space. IDFC Managing Director & CEO Rajiv Lall said infrastructure investment now accounted for 8 per cent of gross domestic product, against 4 per cent in 2003. Of this, the private sector’s share has increased from 0.37 per cent of GDP to around 4 per cent now. IDFC runs two funds through its arms: IDFC Project Equity and IDFC Private Equity.
During the first three years of the current Plan period that ends in March 2012, around 30 per cent of the total spend on infrastructure has come from the private sector, Mukherjee told the conference today. “As we go into the next Plan period, we expect this proportion to go up to nearly 50 per cent,” he said, adding that the PPP route for investment is the most attractive opportunity for foreign investors.
Earlier in the day, Prime Minister Manmohan Singh also emphasised higher US investments in the infrastructure sector, which he said was vital for the country’s growth.
