Assocham wants forex reserves to fund core projects

NEW DELHI: Industry body Assocham has asked the finance ministry to permit the use of about $10 billion from the forex reserves of $175 billion to fund infrastructure projects. The suggestion has been made in view of growing concerns of financing infrastructure projects due to the long gestation period and high risk involvement.

According to Assocham, the lending to infrastructure projects out of the forex reserves should be at the Libor rate(used to make adjustments to adjustable rate mortgages).

Assocham president Anil Agarwal, said, “Currently, majority of reserves are parked in low yield sub-Libor securities outside the country. If used, they would provide better returns to the government, augment resources of the domestic lenders and provide cheaper funds to the infrastructure borrower.”

The industry body has also proposed that the private sector should be allowed to issue zero coupon bonds. In addition, present restrictions that do not allow private sector infrastructure projects or special purpose vehicles to have access to these bonds, should be removed.

Besides, the industry body emphasised on the need to provide greater opportunity to the insurance and pension funds. At present, the insurance companies cannot lend more than Rs 150 crore for a project.

Assocham has also called for relaxation in the cap on the debt foreign institutional investors from the present $1.5 billion. This would give FIIs more opportunity and freedom for a long-term investment in the debt market.

The chamber has also asked the government to set up a ‘guarantee corporation’ that would be purely in the business of providing financial guarantees to enhance the credit rating of projects.