FE Editorial : Guaranteeing growth

Written by The Financial Express | Updated: Feb 28 2013, 05:58am hrs
Given the limited options before the finance minister when it comes to stimulating growth, he has to come up with as many innovative solutions as possible to revive private investments. More so since, after going on an investment binge over the past few yearsthe value of stuck projects today is upwards of Rs 7.5 lakh crorelarge sections of India Inc dont even have good enough balance sheets to be able to borrow funds to finance large projects. While increasing emphasis on clearing stalled projects using the Cabinet Committee on Investment (CCI) route is an obvious and low-cost solutionespecially since, in a large number of cases, the investment has already been madethe other solution lies in finding ways to leverage government monies. Viability gap funding, as in road projects, is an idea that has been tried successfully and needs replication in other areas.

Another idea likely to find mention in the Budget later this morning is of making private projects more bankable through credit enhancement. Take a road project being financed as an SPVit will likely have a lower credit rating than that of the promoter firms. If, however, for a fee, the projects debt was backed by a government fundthe fund could be contributed to by the government as well as multilateral funding agenciesits paper could get a higher rating and thus borrow at better rates. Obviously, the risk of the guarantees going bad is high, but thats where the fund managers come in. The upside, however, is high and it also serves as a good source of investment for both foreign and local investors once it gains some traction.