Even as cost of borrowing has gone up and companies are finding it hard to mobilise funds at competitive rates, the government has delayed permission to its own agencies to get access to relatively cheaper credit in the form of tax-free bonds.

Five months have passed in the current fiscal, but finance ministry is still to give final nod to government agencies, such as National Highways Authority of India (NHAI) and Indian Railway Finance Corporation (IRFC), to raise resources from these instruments impacting several infrastructure projects.

In February, finance minister Pranab Mukherjee had announced that NHAI, IRFC, Housing and Urban Development Corporation (Hudco) and major ports could raise R30,000 crore by issuing tax-free bonds during the current financial year.

This was part of government?s effort to channelise money for development of physical infrastructure as banks are cautious of lending for it.

These bonds are different from regular infrastructure bonds. In regular infra bonds, investors get tax waiver on principal investment but returns are taxed. However, in the bonds to be issued by NHAI, IRFC, Hudco and ports, returns are tax-free but invested amount would be taxed.

NHAI and IRFC were allowed to borrow R10,000 crore each and have done the groundwork for the issues in September. ?We have still not received the permission from finance ministry. Now, we cannot say when we would issue the bonds,? a senior official in NHAI told FE.

IRFC managing director Rajendra Kashyap said his organisation is also waiting for the nod from finance ministry. Hudco, which could borrow R5,000 crore, could not be reached for comments.

The organisations are also concerned that choppy market conditions and high-interest regime currently may adversely impact their bond issues even after the government gave its formal approval. Already, the infra-bond issues by state-owned NBFCs such as Rural Electrification Corporation, Power Finance Corporation have met with lukewarm response in the market.

As part of the Budget proposals for 2011-12, Mukherjee had also allowed port sector to raise R5,000 crore during the year. However, shipping ministry has still not identified which institution would issue the bonds. A senior official in shipping ministry said a new agency would be set up by the end of 2011. ?We are planning to set up a new institution called Indian Ports Global that will be entrusted this task,? the official said, adding the money would be used to develop major ports in India and buying port assets abroad.

Commenting on dwindling markets, IRFC?s Kashyap said ?till June we were expecting that the bonds could be issued at a coupon rate of 7.5%. But with an increase in interest rates and falling markets, I think the coupon rate could go up to 7.75%?.

Recent performance of Indian financial markets has been bad. Bombay Stock Exchange?s Sensex has fallen 11.88% in last one month, while rupee reached nine-month low on Monday. Yield on 10-year benchmark 7.8%, 2021 bond was 8.26% on Tuesday, unchanged from previous day.

However, market experts said that demand for tax-free bonds may remain weak in near future as investors are expecting Reserve Bank of India to hike interest rates to reduce inflation, which stood at 9.22% in July.