FinMin mulls over currency swap for infrastrusture
With infrastructrue crying for long term funding and external commercial borrowing having a cap of $18 billion in a year, the Finance Ministry is toying with the idea of allowing currency-swap to allow foreign funding in rupee-denominated loans.
By PTI |
NEW DELHI: With infrastructrue crying for long term funding and external commercial borrowing having a cap of $18 billion in a year, the Finance Ministry is toying with the idea of allowing currency-swap to allow foreign funding in rupee-denominated loans.
Other such innovative financial instruments and development of corporate debt market may soon see the light of the day with the Finance Minsitry planning to hold talks with the RBI, Sebi, merchant bankers and multilateral agencies to woo private lenders to fund infrastructure projects, a key official in the ministry told media here.
As there is a cap of $18 billion in ECB for the entire economy in a year, it would not be possible to fund infrastructure needs through this source to a significant extent, he said.
As such, an instrument of currency swap may be allowed to give an option to foreign lenders to give funding in a rupee- denominated form, he said.
"We will explore that possiblity. We are not yet certain about the exact nature of such financial instruments," the official said.
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Infrastructure like roads, power, railways and aviation require an enormous amount of $320-350 billion by 2012 to raise rate of investment in the key areas at par with economic growth. Twenty per cent of the required investment will have to come from the private sector, the official said.As such, the total requirement of private sector investment in infrastructure is somewhere near $65-70 billion, of which $25 billion should come from equity and the rest through debt in public-private partnership (PPP) projects, the official said.
While the Finance Ministry is quite certain about the quantum of funds needed from the private sector in infrastructure projects, it is yet to do an analysis of the policy requirements that are needed to attract this kind of money, the official added.
"This analysis, we will do now. We are in the process of working out a concept paper and will come out with it in four weeks," he said.
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He said the ministry will hold consultations with merchant banks, multilateral agencies, RBI and Sebi on the ways to attract the private capital in infrastructure.Huge private sector funding is required since public investment in the area is constrained by limitations on the Government borrowing programme imposed by the FRBM Act and demand for investment by other growing sectors of the economy.
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He said the consultation paper will not only touch the issue of the requirement of $20-25 billion equity from the private sector but also on the availability of such equity backed by specific technical know-how in the particular sector.Citing an example, he said the private player offering equity in the aviation sector must also have technical expertise to carry out work in the sector.
Besides, the paper will analyse whether there are enough number of PPP projects in the country. It would seek suggestions on the ways to develop such projects with the help of the Centre and state governments.
The paper will also assess the ways to create capacity in states for coming out with such projects, he said.
Earlier this month, Finance Minister P Chidambaram had admitted a virtual absence of long term instruments for infrastructure funding.
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