Industry ministry wants SWF to buoy infra project financing

In a discussion paper on infrastructure financing,the ministry has called for using part of its foreign exchange reserves to set up the sovereign wealth fund (SWF) as has been done by the likes of China,South Korea and Singapore.

“While the Reserve Bank of India has reservations about the issue,this (SWF) option needs to be explored,” it said. India has foreign exchange reserves of about $320 billion.

Besides,setting up SWF,the ministry has also made a case for development of domestic bond market,currency market and debt funds for financing infrastructure projects,seen as a major bottleneck in achieving double-digit economic growth.

The paper also suggested that the government address taxation issues concerning infrastructure bonds as they would not be eligible for tax exemptions under the Direct Tax Code (DTC),which is likely to come in force next fiscal.

The paper expressed concerns that discontinuing tax incentives under DTC on investments in infrastructure might act as a deterrent for infrastructure financing companies to raise capital.

The Planning Commission pegs infrastructure investment needs at $1 trillion during the 12th Plan (2012-17),up from $500 billion estimated in the current Plan. The government expects half of this investment to be met by the private sector.

India,the paper said “needs to rapidly attract global investors through creation of the world class infrastructure and reduce logistics costs,supported by an enabling policy framework”.

The paper has also advocated credit enhancement through guarantee to address issues related to credit gap rating and risk perceptions.

It also called for the need to have foreign exchange hedging instruments to attract investors.