Govt may ease ECB norms for infra

Chidambaram says steps to improve the corporate bond market also on the cards.

inance Minister P Chidambaram today hinted at easing overseas borrowing norms for developing infrastructure, for which $500 billion is required in the next five years.

At a meeting of the US-India CEO Forum for infrastructure investment, Chidambaram said overseas borrowing norms had to be made more flexible to meet the challenge of raising funds for infrastructure. He also sought a revision of rules on investments by pension funds and insurance companies in the sector.

“Financing infrastructure projects is a major challenge. External commercial borrowings (ECBs) for infrastructure should be made more flexible. Pension and insurance funds should invest more in infrastructure and its guidelines need to be revisited, and above all, we need to develop a broad and deep bond market,” he said.

India’s infrastructure spending stands at 5 per cent of gross domestic product (GDP), which comes to Rs 41,25,725 crore at current market prices. Of the total requirement, about $150 billion would be needed in the form of debt, which could come from the banking system.

Montek Singh Ahluwalia, deputy chairman, Planning Commission, said, “Raising this amount (debt portion) is a challenge and may be the financial system could provide this. But there are restrictions on group exposures, single exposures and project exposures. A review of these is high on the agenda,” he said.

“The growth in infrastructure is lagging the growth in GDP. India needs to raise the proportion of infrastructure spending from 5 per cent to 9 per cent in the next five years,” said Chidambaram.

While the private sector would need to contribute 30 per cent of the funds, 70 per cent would come from budgetary and extra-budgetary resources, besides the public sector’s retained earnings.

The government would also take steps to improve the corporate bond market. Chidamabaram identified thin trading volumes, cumbersome guidelines for bond issues, lengthy clearance processes and lack of delineation of supervisory powers as problems facing the Indian corporate bond market.

“We have fallen behind in deepening and broadening the bond market. The market is less than 1 per cent of the GDP… most issues are taking place through private placements…the clearing mechanisms are not as efficient as they should be. We recognise these problems and this is engaging our attention,” he said.

He added the proposal for dedicated infrastructure funds was stalled due to lack of projects and not insufficient funds. “We are sensitising state government to make a shelf of projects for investment,” he said.

He urged US companies, which have so far not come forward to bid for infrastructure projects, to participate at least as financiers. US firms invested $10 billion in India last year.

Later, Henry Paulson, US treasury secretary said capital controls led to distortions and India should continue to liberalise such controls.

“India has taken administrative steps to adjust the pace of capital outflows and inflows. As recent experience in the region has shown, administrative restrictions of capital flows are blunt instruments and can have unintended consequences. They tend to inhibit efficiency and lose their effectiveness over time,” said Paulson.