SPV not to have impact on fiscal deficit: IMF

NEW DELHI: IMF on Sunday praised the government for its new initiative on funding infrastructure saying the proposed Rs 10,000 crore Special Purpose Vehicle will not impact fiscal deficit.

"We think that the SPV that government is proposing is a positive step forward. It is certainly within the limits of the budgetary provisions of the government," said IMF managing director Rodrigo de Rato.

Setting up a SPV for infrastructure funding was a "good proposal" as it would not only fund public sector but also commercially viable private sector projects.

Asked whether the SPV was a "hidden fiscal deficit" as the government will offer counter-guarantee to it, Rato said it will not impact the government finances as it was "within the limits" of fiscal provisions of the budget.

Finance Minister P Chidambaram in his budget provided a counter-guarantee to the proposed SPV for raising Rs 10,000 crore from the market through long term bonds. Planning Commission welcomed the move, but felt it may have an indirect effect on fiscal deficit.

The plan panel had earlier suggested that a small portion of the burgeoning forex reserves, now at over 137 billion dollars, could be utilised for infrastructure development.

Asked whether it was feasible to use the country''s forex reserves for funding infrastructure, Rato said "we are of the opinion that forex should be used by the central bank (RBI) for desired purposes and should not be monetised."

Rato sees no major risks in the continuing inflow of forex in India, especially through FII inflows, and was not in favour of taxing capital inflows. "I think government can have controls on speculative money. But I don''t think there should be taxes," Rato said.

He said Indian monetary authorities were already coping with that issue. "No new things have to be done to cope with speculative money," he said. However, he said "what India needs is more FDI." The IMF chief asked government to open up the economy with more reforms, especially in SEZ, labour and financial sectors.

Rato pitched for more reforms in the financial sector, which has already made "dramatic strides" in recent years that led to improvement in the health of banks and increase in credit to private sector.

"More remains to be done to build a strong and competitive financial sector in India," he said. In this context, he appreciated RBI for extending greater autonomy to PSU banks and strengthening regulatory mechanisms.

Rato also praised RBI for containing inflation despite the oil shocks.

"RBI has skillfully conducted its monetary policies and has managed to contain inflation at acceptable levels despite the rapid rise in world oil prices last year," he said.

Rato, who wrapped up his three-day visit to India yesterday, had a series of meetings with Congress chief Sonia Gandhi, Prime Minister Manmohan Singh, Planning Commission Deputy Chairman Montek Singh Ahluwalia, Finance Minister P Chidambaram, Commerce Minister Kamal Nath, RBI Governor Y V Reddy and Industry representatives.