India, seeking ways like China to use its foreign exchange reserves, could invest some in other countries’ infrastructure projects to supplement its own needs, a government-appointed panel said in a report on Thursday.
India also needs $475 billion (Rs19.5 trillion), more than previously estimated, over the next five years to develop its infrastructure if it is to grow at 9% in the medium term, the report from the Committee on Infrastructure Financing said.
The report, which was dated May 2007, but has not been publicly released, said a previous funding estimate of $320 billion—based on 2005-06 prices at an exchange rate of Rs45.30 per dollar— needed to be raised to $384 billion, or $475 billion at current prices.
India, Asia’s third-largest economy, is looking for ways to fund development of roads, ports and power, and has been debating how to use its rising foreign exchange reserves, now more than $200 billion, for a couple of years.
China is setting up an agency to diversify part of its $1.2 trillion reserves, and in May it unveiled a plan to take a $3 billion stake in US private equity firm Blackstone.
The panel report said a firm could be set up in a foreign country, funded by the government. That firm could borrow, say, $10 billion of reserves, with the loan benchmarked to the 30-year US government bond and the central bank getting a premium over that to compensate loss of liquidity.
“The mandate of this company would be to invest in infrastructure development outside India, only of the kind that would either supplement India’s infrastructure needs or help in sourcing raw materials or importing machinery for domestic development,” the report said.
For example, it could invest in power projects in Nepal or Bhutan with an understanding they would supply power to India. “Also the company can provide support to Indian oil and gas companies to acquire assets overseas, which would facilitate India’s infrastructure development.”
Finance minister P. Chidambaram had announced some of the panel’s recommendations way back in February. These were that the proposed overseas subsidiaries of India Infrastructure Finance Co. Ltd could borrow reserves and lend to Indian firms involved in domestic infrastructure projects for capital spending abroad, or borrow to invest in securities and provide insurance for overseas fund-raising for home projects.
In the May edition, the report said borrowing reserves from the Reserve Bank of India (RBI) should not add to high domestic monetary expansion and only a small portion should be used.
“The challenge is to balance the objectives of RBI in its reserve management (safety, liquidity and return) against the needs of the infrastructure sector,” it said.
The financing gap—the difference between targeted spending and current spending as a per cent of GDP—would be $162 billion at current prices, which had to come from private sector and offshore investors, the report added.