IFCs funding infra sector should be through automatic routes: ASSOCHAM

To facilitate flow of funds from the international market with flexible but prudent regulatory framework, the apex industry body ASSOCHAM has suggested that all infrastructure finance companies (IFCs) be brought under the automatic route in line with other corporate in the infrastructure sectors.

“Exempting withholding tax on interest and other payments to external commercial borrowings (ECBs) by infrastructure sector including the IFCs and also allowing, within a certain limit, Indian corporate in the infrastructure sector, including IFCs to issue rupee denominated bonds in the international markets”, said a study titled ‘Indian Infrastructure: A Trillion dollar opportunity’, jointly conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Deloitte.

The study said, recently, take-out financing arrangement has been permitted through ECB, under the approval route, for refinancing of rupee loans availed from domestic banks by eligible borrowers in the port, airport, roads including bridges and power sectors for development of new projects.

However, there is a need to simplify the process for take-out financing/refinancing rupee loans through ECBs for infrastructure companies as to engage foreign lenders for takeout are limited. It is difficult for foreign lenders to come to an agreement at the initial stage itself and assume the execution risk at the time of take out, said the study that was jointly released Tamaki Tsukada, Minister (Economic), Embassy of Japan, Gautam Bhandari, Chairman- PEVCAI, Gautam Adani, Chairman Adani Group, Kalpana Jain, Co-Chairperson, PEVCAI & Senior Director, Deloitte Touché Tohmastu India Pvt. Ltd. at ASSOCHAM 5th PEVCAI Annual Convention in New Delhi today.

This condition of entering into tri-partite agreement may be dispensed away with and an amount for such take-out financing through ECB automatic route could be declared on an annual basis, suggested the study.

There is a need to relax the all-in-price ceiling for ECBs (i.e. 500 basis points over the 6 month Libor) for infrastructure projects with average maturity exceeding 7 years. The interest rate ceilings set by RBI on ECBs put constraints in availing foreign currency loans for domestic infrastructure projects, the study said further.

Relaxation of the ECB ceiling of USD 500 million per annum per company for automatic route will help make ECB stable source of financing and ensure increased ECB funding

To facilitate flow of funds from the international market with flexible but prudent regulatory framework, following measures could be considered; bringing IFCs in the infrastructure sector under the automatic route in line with other corporate, exempting withholding tax on interest and other payments to ECBs by infrastructure sector, including IFCs and allowing, within a certain limit, Indian corporates in the infrastructure sector, including IFCs to issue Rupee denominated bonds in the international market.