New Delhi: India is considering to launch debt funds of $5 to $11 billion each to help build highways and other large infrastructure projects in addition to a similar fund announced last week, a top government official said on Friday.
The country aims to spend about $500 billion in the five years to end-March 2012, to overhaul rickety infrastructure that has been a drag on growth for Asia’s third largest economy.
Brahm Dutt, secretary at the road transport ministry, said the consensus among policymakers was to have a series of funds to finance the ventures rather than go for one $150 billion to $200 billion fund.
“The feeling is we should have many more funds of small, small size,” Dutt, who was a participant at the meeting last week that decided on the fund plan, told Reuters in an interview.
The Planning Commission, which charts out five-year plans for the economy, last week said India would set up an $11 billion infrastructure debt fund by year-end that will help refinance high-cost debt.
“One of the views that emerged at the meeting taken by the deputy chairman (of the planning commission) was that we should not have a very large size omnibus fund,” Dutt said.
Foreign, Private Interest
India is considering doubling the investment figure in the five years from 2012, and has effected policy changes meant to facilitate greater foreign and private equity participation in the infrastructure projects.
The government allows 100% foreign direct investment in the road sector, but problems in land acquisition, stringent exit clause and a slow adoption of the toll-road model in India have made foreign investors largely stay away from the sector.
Dutt said road projects are “difficult” projects for various reasons, which is forcing foreign investors participate in them in consortium with Indian partners.
In December 2009, India amended the exit clause to allow road developers to move out of a project after two years of its completion against the previous norm of 20 years.
Dutt hoped the change in the clause would encourage greater foreign participation in the sector, which he said has attracted interests from Deutsche Bank, Spain’s Isolux Corsan and Malaysia’s IJM.
Capacity bottlenecks in the Indian economy, including poor infrastructure, are partly responsible for driving up headline inflation in India to near double digit levels.
India last year set a target of building 20 kms of roads a day and has increased the capital spending for the sector in the February’s budget by 22% to about Rs22,200 crore ($4.7 billion).
But the country’s road-building is currently running only at 12 kilometres a day, which Dutt said is due to “limited” road projects that were awarded previously.
“It may happen by 2011-12... average will be much more than 20 km in 2012-13 and it will further go up in 2013-14,” he said.