The seven-member Deepak Parekh Committee on infrastructure financing has suggested that India should allow holding companies to raise foreign direct investment through the automatic route, refinance rupee loans and relax cost ceilings for external debt, in its final report submitted last week.

The committee has also raised infrastructure spending targets for the next five years from the original $320 billion to $475 billion. These were among the key recommendations of the 49-page report (see chart), a copy of which was seen by Business Standard.

The report is the second of a two-part document that sets out the broad policy architecture for infrastructure. The recommendations are expected to be viewed favourably given the present government's focus on infrastructure, sources said.

With two and a half years of the government's term remaining, it is keen to kick-start the process in right earnest.

The Parekh committee was set up by Finance Minister P Chidambaram on December 26, 2006, to suggest ways to facilitate financing India's infrastructure needs by improving access to long-term risk capital, principally from foreign sources, given domestic banks' inability to lend long term.

It submitted its interim report before this year's Budget, based on which Chidambaram announced the setting up of two dedicated overseas subsidiaries that would leverage a part of India's foreign exchange reserves to boost infrastructure development.

Besides Deepak Parekh, who heads financial institution HDFC, other committee members include key representatives of major banks and infrastructure finance institutions.

Experts say some of the recommendations are expected to have a far-reaching impact on infrastructure companies.

"FDI through the automatic route will expedite fund-raising through holding companies of large corporates like L&T and GMR Infrastructure," said Kuljit Singh of Ernst & Young.

The suggestion to refinance rupee loans through external commercial borrowings is also considered a major step forward.

"This option is attractive when domestic interest rates are high and the rupee is appreciating, which is the case at present," Singh said.

Hemendra Kothari, chairman, DSP Merrill Lynch, Nachiket Mor, deputy MD, ICICI Bank, Sanjay Nayar, CEO, Citibank India, S S Kohli, chairman, Indian Infrastructure Finance Co, Rajiv Lall, MD & CEO, IDFC Ltd, and T S Bhattacharya, MD, State Bank of India.

Core concerns
(Key recommendations of the Parekh committee report).

• No withholding tax on foreign borrowings by infrastructure firms.
• Allow refinance of rupee loans through external commercial borrowing.
• Extend the tax rebate to individual investments in ultra mega power projects.
• Relax cost ceilings for subordinated debt and mezzanine debt (debt that incorporates equity-based options) .
• Infrastructure holding firms should not be subjected to the same norms as non-banking finance companies.
• Investments in unlisted shares should be taxed at the same rate as listed shares.
• Rationalise dividend distribution tax to reduce tax burden.