The Government of India is likely to finalise the new Infrastructure Trust Fund in next two months, Dr. Arvind Mayaram, Secretary, Department of Economic Affairs, Ministry of Finance, announced at an event held in New Delhi recently. Infrastructure Trust Fund is being constituted on the lines of Real Estate Investment Trusts.
Addressing the 3rd International Summit on Infrastructure Finance organised by ASSOCHAM, Dr. Mayaram said that under the new structure of Infrastructure Trust Fund, the underlying revenue of a project would be transferred to a trust which would issue units to investors, including private and foreign investors. The new structure is mainly popular in countries like Singapore, Hong Kong and USA.
Dr. Mayaram also highlighted innovative ways to finance infrastructure projects such as public-private partnership that offer advantages in terms of leveraging public capital to attract private capital and undertake a larger number of infrastructure projects, introducing private sector expertise, and cost reducing technologies to bring in efficiency in operation and maintenance.
So, he added, governments in various economies were promoting PPP as an effective tool for private sector efficiency in creating economic and social infrastructure assets and delivering quality public services.
“Infrastructure Debt Funds through innovative means of credit enhancement are expected to provide long-term low-cost debt for infrastructure projects. The cost and tariff of infrastructure services are likely to go down as a result of low-cost long-term debt provided by IDFs. Potential investors in IDF may include offshore institutional investors, offshore high net worth individuals and other institutional investors (insurance funds, pension funds, sovereign wealth funds etc.),” Dr. Mayaram stated. “The income of infrastructure debt funds has been exempted from income tax. The reduction in withholding tax has also been allowed on interest payment on borrowings of IDFs from existing 20 per cent to 5 per cent.”
Besides devising innovative ways to finance infrastructure projects, Dr. Arvind Mayaram said that it was equally important to provide an enabling environment to investors. The government had taken several initiatives like setting up the Cabinet Committee on Investment to fast-track project clearances. External commercial borrowing had been made accessible to all infrastructure players under automatic route.
He also spoke about the harmonisation of a master list of infrastructure projects, regulators in road, port and railway sectors, and review of PPP approach in the road sector.
“The 12th Five-Year Plan lays special emphasis on development of infrastructure sector for sustaining high growth and ensuring inclusive growth. The total investment in the core infrastructure sector during the 12th Plan is estimated at $1 trillion, of which $500 billion is expected to come from the private sector,” Dr. Mayaram added.
The share of private participation in infrastructure investment has increased from 22 per cent in the 10th Five-Year Plan to 38 per cent in the 11th Plan and is expected to be about 48 per cent during the 12th Five-Year Plan.