For infra fund,tweak rules:Parekh panel

Such as move would help reduce interest costs and hence cut user-charges since banks are not able to provide the required long-term funds for infrastructure projects,the report said.

In its report submitted to the Planning Commission,the Parekh committee further suggested that the proposed infrastructure fund with an initial corpus of Rs 50,000 crore be set up as venture capital fund (VCFs) to be managed and regulated by Sebi.

For this purpose,the market regulator Sebi should be asked to amend its guidelines for VCFs to enable investment in the debt market. Currently,only a part of VCF is allowed to be invested in debt,the panel said.

The report also said pension and insurance money should be permitted to be invested in the fund to provide long-term financing to infrastructure projects coming under the public private partnership (PPP) model.

The report suggested that the insurance regulator Irda and the interim pension watchdog PFRDA be approached to modify the rules to enable these funds to invest in the infra fund.

Besides,the report recommended that foreign insurance,pension and sovereign funds be asked to invest in the proposed infra fund. For this,the RBI will have to be approached to create a special window for these kinds of foreign debt with a tenure of 10 years or more.

Also,the multilateral agencies like the World Bank and the Asian Development Bank would also be asked to invest in the fund.

Explaining the recommendation of the committee,advisor to the Plan panel deputy chairman Gajendra Haldea said there would be cost-advantages to all those PPP projects which would be financed by this infrastructure fund.

Since the fund would provide longer-term capital to infrastructure,the interest benefit a year could be around 2 per cent compared to banks loans,he said.

“This will help in not only reducing the costs of bid for various PPP projects by reducing the EMIs,but also in cutting the end-user charges,” Haldea said.

Haldea further said it is up to the government and regulators to expedite the creation of the fund. “For the creation of this fund,the government would act as a facilitator. The group has suggested certain tweaking of rules by the regulators. Now it is up to them whether they take three months,a year,or two years for doing that,” Haldea said,when asked how soon this fund be created.

The report has also recommended that the income tax department exempt interest income from the fund from withholding tax to woo foreign investors. Besides,the department should also be asked to give other exemptions to returns on investment from the fund,the report said.

The report will be submitted by Planning Commission deputy chairman Montek Singh Ahluwalia to the finance ministry soon.

The recommendations of the Parekh committee assume importance since infrastructure upgradation is required to sustain high economic growth and require USD1 trillion during the XII Plan (2012-17).