As the demand for a grand stimulus gathers steam, the government is targeting an investment of Rs 100,000 crore (Rs 1,000 billion) in the infrastructure sector within the next two years. To bankroll the plan, the government may ask Infrastructure Investment Finance Company Ltd to put together a corpus of over Rs 40,000 crore (Rs 400 billion).
With companies and business houses in a financial bind, this scheme aims to take up infrastructure projects under public-private partnership with minimal private investment. Under the proposed formula, a private sector company can start an infrastructure project with just 15 per cent of the required capital and the balance will be provided by government-owned agencies.
Most infrastructure projects are financed three parts by debt and one part by equity. In case the promoter is unable to put together the entire equity capital, IIFCL will offer quasi equity of up to 10 per cent of the project cost. This will bring down the private promoter's contribution down from 25 per cent to 15 per cent. Apart from quasi equity, IIFCL will refinance up to 60 per cent the banks which lend to such projects.
IIFCL, which has already been mandated to raise Rs 10,000 crore in tax-free bonds, will be permitted to mobilise another Rs 30,000 crore (Rs 300 billion) through the same route, the sources said. This will take the total to Rs 40,000 crore. The scheme is awaiting the approval of the Central Board of Direct Taxes for tax exemption to the subscribers. In addition, the government needs to provide a sovereign guarantee to the bonds. Both the approvals are expected shortly, the sources said.
The Rs 10,000 crore raised by IIFCL is supposed to fund road and port projects worth Rs 25,000 crore (Rs 250 billion). With Rs 40,000 in its kitty, it will be able to stimulate infrastructure projects of over Rs 100,000 crore.
With private sector investments drying up, thanks to the tight monetary condition, the demand for massive government-backed spending on infrastructure has gained momentum. Such spending raises the demand for steel, cement and capital equipment, which, in turn, has a cascading effect on the other segments of the economy.
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