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34% in 2010-11.
Though much of the slowdown in investment was due to delay in land acquisition and forest clearances, sources said the finance ministry is serious in reviving private investment through a mix of policy initiatives including tax breaks, credit enhancement and re-energising the corporate bond market by incentivising bourses to launch trading platforms for retail investors.
“The Budget may announce setting up a bond guarantee fund,” an official close to the development said.
The proposed bond guarantee fund will help reduce the reliance on government guarantees for various projects, especially public-private partnerships and enhance fund flows to private companies.
While IIFCL has started a credit enhancement facility — a mechanism to provide partial guarantee to special purpose vehicles (SPVs) involved in infrastructure projects so that their bond ratings are raised to investment grade of “AA”, the government wants to institutionalise the facility through setting up of a bond guarantee fund. Such a facility will help infrastructure SPVs to sell their bonds to insurance companies and pension funds.
“We have already got 14 proposals for providing partial guarantee to bonds totalling R5,000 crore of infrastructure SPVs. IIFCL is working towards launching a regular credit enhancement scheme very soon,” said IIFCL chairman SK Goel. For instance, GMR has approached IIFCL for credit enhancement for their airport projects in Delhi and Hyderabad, he said.
The government is also in discussion with Asian Development Bank for partial credit guarantee facility that could help corporates raise rupee equivalent of $12 billion through bonds over the next three years, sources said.
India will require $1 trillion investment in infrastructure during the 12th Plan period (April 2012 to March 2017) to sustain over 8% GDP growth, but Indian banks may not be able to finance the entire amount considering the asset-liability mismatches and the permissible exposure limit in infrastructure lending. Equity financing is equally scarce for infrastructure projects, which is why the government is relying on corporate bond market to arrange most of the funds for infrastructure.