A private special purpose vehicle would manage the proposed $11-billion Infrastructure Fund. The fund was mooted at a high-level meeting chaired by Planning Commission deputy chairman Montek Singh Ahluwalia on May 12.
?The intention is to manage the fund through an independent SPV, which will be a private company. The SPV will have members from financial institutions, banks and other organisations that will provide money to the fund,? Planning Commission member BK Chaturvedi told FE. It is reckoned that management by a private SPV would ensure efficiency and optimum use of the fund for infrastructure sector which is facing an investment deficit despite sundry government incentives.
The government has set up a committee under HDFC chairman Deepak Parekh to finalise the modalities of the fund. ?The committee has just started working out the modalities. It is expected to submit the report in a month time,? Chaturvedi added.
The infrastructure sector is suffering from a large funding gap as banks are reluctant (and unable) to provide long-term debt and private sector is not fully confident of getting good returns. As per figures gathered by FE, the port sector, where total intended investment for the 11th Plan period (2007-12) is Rs 88,000 crore, has a shortfall of 61% in the first three years of the Plan. Railway and road sectors that require investment of Rs 2.62 lakh crore and Rs 3.14 lakh crore, respectively in the Plan period, have a gap of 28% and 22%, in that order. At the same time, power sector, which needs highest investments at Rs 6.6 lakh crore for the Plan, the shortfall in the first three years is just 12%.
The government has envisaged infrastructure outlays of $1 trillion for the 12th Plan (2012-2017). According to Planning Commission estimates, 50% of the total expenditure has to come from the private sector. ?At present, the private sector contribution is 36%,? said Gajendra Haldea, advisor (infrastructure) to Ahluwalia. The new fund is a big initiative to ensure the projected levels of investment materialises.
?The $11-billion corpus is only an initial size of the fund. It may be increased depending on the need of the sector,? Chaturvedi said. The fund will raise money from various sources, both in the domestic market as well as foreign. The government has also planned raising money from insurance and pension funds and may introduce safeguards to protect the public money. ?We are looking at long-term funds for the infrastructure sectors. Such funds cannot come from the banking sector. It can only come from insurance and pension funds. They are allowed to invest in infrastructure. But we have to ensure that the public money does not get diluted in the process,? Chaturvedi had told FE earlier.