Outlining the need for rating of projects and special purpose vehicles, Mayaram said financial regulators IRDA and PFRDA can adequately tweak investment norms to ensure higher flow of funds to the infrastructure sector.
Regulatory hurdles coupled with delay in project clearances is choking the infrastructure sector, which will require $1 trillion to propel economic growth to 9% in the 12th Plan period, which started on April 2012 and ends on March 2017.
Admitting that government can spend only half of the projected investment in the next five years, Mayaram said the private sector has to contribute the remaining $500 billion. Concerns over asset-liability mismatch in the wake of tighter Basel-III norms will make bank funding inadequate while external commercial borrowing cannot be relied on entirely as it puts undue pressure on exchange rate, he said, adding more funds need to be raised from the debt market through corporate bonds and licences should be granted for new banks.
We are considering (hike in FII limit in government and corporate bonds). The limit has not been decided yet, Mayaram told reporters. At present, the FII investment limit is capped at $20 billion for government securities, $15 billion for corporate bonds and $25 billion for infrastructure bonds.
The government last raised the FII limit in G-Secs in June and corporate bonds in November 2011.
Chances are the FII limit may be raised by $5 billion each for G-Secs and corporate bonds, as it has been the practice in past few years.
The hike in FII limit in debt is also needed as Indian financial institutions are scheduled to raise R60,000 crore in tax-free infrastructure bonds in the remaining part of 2012-13. Mayaram said the government was considering strengthening the legal framework for corporate bonds through suitable amendment in the Sarfaesi Act for recovery of non-performing assets. The government may also change the Income Tax Act and Companies Act, he added.
The finance ministry is also open to any change in the rules for dedicated exchange traded funds (ETFs) for infrastructure which can help companies raise equity for mega projects. We need long-term patient equity for infrastructure. We are open to discussion if there is a need for change in regulations, he said. At present, only Goldman Sachs has an infrastructure ETF but the corpus is very small.