Infrastructure trust fund to become a reality soon

The Government is working on new Infrastructure Trust Fund (ITF) and structure will be finalized in next two months which is in the nature of Real Estate Investment Trusts (REIT), said Dr Arvind Mayaram, Secretary, Department of Economic Affairs, Ministry of Finance at an ASSOCHAM event held in New Delhi. 

While addressing the ASSOCHAM 3rd International Summit on Infrastructure Finance Dr. Mayaram said that under the new structure of Infrastructure Trust Fund, the underlying revenue of project will be transferred to a trust and the trust will issue units to investors, including private and foreign investors. The new structure is mainly popular in countries like Singapore, Hongkong and USA.

Dr. Mayaram also highlighted the innovative ways to finance infra projects like public private partnership (PPPs) that offer a number of 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 efficiencies in operation and maintenance.

Therefore, the governments in various economies are promoting PPPs an effective tool for bringing private sector efficiencies in creation of economic and social infrastructure assets and for delivery of quality public services, added Dr. Mayaram.

“Infrastructure Debt Funds (IDFs) through innovative means of credit enhancement is 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 provides by IDFs. Potential investors in IDF may include off-shore institutional investors, off-shore High Net worth Individuals, & other institutional investors (insurance funds, pension funds, sovereign wealth funds, etc.). 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% to 5%”, said Secretary, Department of Economic Affairs here today.

He also emphasized on the tax free bonds, he said that the government has attempted to broaden the corporate bond market by according tax free status to infrastructure bonds. Government has proposed to allow tax free bonds amounting to Rs. 50,000 crore during the financial year 2013. These bonds are issued with a minimum tenure of 10 years and maximum of 20 years. These bonds, however, do not offer any benefit of tax-savings at the times of investment.

Apart from devising innovative ways to of financing infra projects, Dr. Mayaram said, it’s equally important to provide an enabling environment to the investors. The government has also taken several initiatives by setting up of Cabinet Committee on Investment to fast track project clearances. The external commercial borrowing (ECBs) has been made accessible to all infrastructure players under automatic route. He also mentioned that the harmonization of master list of infra projects, regulators in road, port and railway sectors and review of the PPP approach in the road sector.
   
Speaking at an ASSOCHAM event, Dr. Mayaram said, “in India, the twelfth five year plan lays special emphasis on development of the infrastructure sector for sustaining high growth and ensuring inclusive growth. The total investment in the core infrastructure sector during the 12th five year plan is estimated at approximately USD 1 trillion, USD 500 billion of which is expected to come from the private sector”.

The greater share from the private sector has been encapsulated considering the fact that the share of private participation in infrastructure investment has increased from 22 percent in the tenth five year plan to 38% in the eleventh plan and is expected to be about 48% during the twelfth five year plan.

Mr. Mayaram said, the deficit in infrastructure sector is not peculiar to only the developing economies; the advanced economies are also facing the challenge of maintaining and upgrading the extensive infrastructure networks that have been created. It is estimated that the US alone would require at least USD 2 trillion to meet its infrastructure needs and the forecast investment needs for infrastructure improvements total upward of 2 trillion Euros across the continent.

Others who spoke during the ASSOCHAM conference were Mr B.K. Chaturvedi, Member, Planning Commission, Mr Rajkumar Dhoot and Mr. Anil K Agarwal, Past Presidents of ASSOCHAM, Mr S.C. Aggarwal, Chairman, ASSOCHAM Micro Finance Committee & CMD SMC Group and Mr D.S. Rawat, Secretary General, ASSOCHAM.