A high-powered committee of the Planning Commission has pegged infrastructure funding requirements at a whopping Rs 65 lakh crore or a little over $1 trillion in the 12th five-year Plan to achieve its average yearly growth rate of nine per cent during 2012-13 to 2016-17.
This is much higher than the figure pegged by the finance ministry in this year's Budget. "During the Plan period, infrastructure investment will go up to Rs 50 lakh crore. About half of this is expected to come from the private sector," then Finance Minister Pranab Mukherjee had said in his Budget speech.
The committee said half of the funding has to come from budgetary resources, while the rest can come from elsewhere. However, it noted that arranging for the non-budgetary part would be difficult; it required clear policy and regulatory measures for, among other things, deepening of the corporate bond markets, tweaking of rules for investment by insurance and pension fund companies and by large foreign companies in the sector.
| FUND CHANNEL Funds for infrastructure available through various channels other than budgetary resources (in Rs crore) | |||
| Particulars | Estimated funds without taking extra steps | Additional funds if steps are taken | Total fund available |
| Commercial banks | 743,511 | 145,000 | 888,511 |
| NBFCs | 384,477 | 53,300 | 437,777 |
| Insurance | 150,766 | 452,298 | 603,064 |
| ECBs | 54,957 | - | 54,957 |
| Equity & FDI | 455,414 | 222,155 | 677,569 |
| Total | 17,89,126 | 872,753 | 26,61,878 |
| Note: Total funding requirements in 12th Plan: Rs 65 lakh crore; Budget resources to provide Rs 32.5 lakh crore; Other resources required to contribute Rs 32.5 lakh crore; Even after taking policy measures Rs 5.89 lakh crore will still remain as a gap from non-budgetary side Source: Planning Commission Working Sub-Group on Infrastructure | |||
The panel, whose recommendations could form part of the final document for the 12th Plan being finalised by the Planning Commission, said these steps would go a long way in attracting private entities to the sector. It said unless as much as Rs 65 lakh crore was invested in infrastructure, it would be very difficult to meet the nine per cent average annual GDP growth rate target.
The finance ministry had recently rationalised schemes for investments by foreign institutional investors (FIIs) in long-term debt. Currently, FIIs are allowed to invest in these up to a ceiling of $25 billion. However, the committee said the bigger question marks were on equity funding for infrastructure. “During the Plan period, equity funding is expected to be a bigger constraint than debt funding,” it said.
On the basis for its calculation, the panel said it was estimated during the mid-term appraisal of the 11th Plan that a yearly nine per cent GDP growth required infra investment in the range of 10 per cent of GDP. The Planning Commission estimated this to be around Rs 41 lakh crore investment in 2006-07 prices, while converting this into nominal terms (based on expected inflation of five per cent yearly) would imply Rs 65 lakh crore of investment in current prices for the 12th Plan.
Assuming half of this would come from budgetary resources, the panel said Rs 32.5 lakh crore had to come from elsewhere. Of this, projected funding by various sources would be Rs 17.89 lakh crore, leaving a gap of Rs 14.6 lakh crore over the next five years. The panel said this gap could be brought down to Rs 5.89 lakh crore if the government implemented the specific measures suggested by it, such as deepening of the corporate bond market, and higher involvement of insurance and pension funds in infra funding.
"It is difficult to quantify the impact of all the measures indicated. But just based on the relaxation of regulations/prudential norms for insurance companies and pension funds, the non-budgetary funds available for the sector might go up to Rs 26.6 lakh crore which could result in reduction of the funding gap to Rs 5.89 lakh crore," the panel said.
This gap, the panel noted, would swell if the budgetary support to infra funding was less than the estimated Rs 32.5 lakh crore.
