Facebook Pixel Code

Infra funding gets big push

Just ahead of the 12th Five-Year Plan period starting in April, the government has proposed to remove funding constraints in infrastructure by doubling the issue of tax-free bonds by public sector entities, and expanding the list of sectors allowed to borrow overseas.

Just ahead of the 12th Five-Year Plan period starting in April, the government has proposed to remove funding constraints in infrastructure by doubling the issue of tax-free bonds by public sector entities, and expanding the list of sectors allowed to borrow overseas. A fillip to financing is required as the country needs $1-trillion investment to revamp its infrastructure between 2012 and 2017 against $500 billion in the last Plan.

Presenting the annual Budget for 2012-13, finance minister Pranab Mukherjee raised the limit of issuing tax-free bonds by infrastructure entities to R60,000 crore from R30,000 crore. However, as per the government policy now, these bonds can be issued only by public utilities, leaving subdued appetite by investors for infrastructure bonds issued by private companies like IDFC, Srei Infrastructure Finance and Larsen & Toubro.

National Highways Authority of India, Indian Railway Finance Corporation (IRFC) and India Infrastructure Finance Company can raise R10,000 crore each through tax-free bonds, while Housing & Urban Development Corporation, National Housing Bank and Small Industries Development Bank of India can borrow R5,000 crore. Power and port sector entities can lift R10,000 crore and R5,000 crore, respectively.

?The decision should help in lowering weighted average cost of borrowings,? said MD of IRFC Rajiv Dutt. Ernst & Young partner Satish Aggarwal also said cheaper funds will be available to these corporations and financiers. ?It is true that the space for private bonds gets reduced with a large space occupied by public sector bonds that enjoy tax-free status. But the Budget has opened other funding options for infrastructure companies like external commercial borrowings (ECB),? Aggarwal added. Concern emantes from poor showing of bond issues by infrastructure firms such as L&T, IDFC and Srei in current financial year.

Mukherjee also allowed ECB for capital expenditure on maintenance and operations of toll systems as long as they are part of the original project. Airlines like debt-ridden Kingfisher also have been given a fresh lease of life in the Budget as they along with other airlines can now together raise $1 billion for a period of one year to meet working capital needs.

Infrastructure companies in power, airline businesses and in construction of road, ports, bridges, affordable housing and dams have also been given relief by way of reduction in witholding tax on interest payment on ECB from present 20% to 5% level.

In a move that will encourage public-private partnership, irrigation, terminal markets, common infrastructure in agriculture markets, soil-testing laboratories and capital investment in fertiliser sector are also made eligible for viability gap funding (VGF), the gap between total cost of the project and private investment. Storage facilities for oil, gas and LNG, and oil and gas pipelines, fixed network for telecommunication, and telecommunication towers also qualify for VGF.

Get live Share Market updates, Stock Market Quotes, and the latest India News and business news on Financial Express. Download the Financial Express App for the latest finance news.

First published on: 17-03-2012 at 02:04 IST
Market Data
Market Data
Today’s Most Popular Stories ×