FM sees 30% shortfall in infra funding

Finance Minister Pranab Mukherjee has said there may be 30 per cent gap in infrastructure funding requirement, targetted at Rs 41 trillion, in the 12th Five Year Plan (2012-2017).

"There may be a substantial gap of up to 30 per cent in financing the ... ambitious target of Rs 41 trillion of investment in infrastructure for the XII Plan," Mukherjee said at the Parliamentary Consultative Committee meeting on Tuesday.

He said the fundamental constraint in financing infrastructure relates to the limits on banks' lending to the sector due to asset-liability mismatch. The funds are required for 14-15 years but deposits are of shorter maturity, he added.

"Increasingly, therefore, we would need to rely upon intermediating greater amounts of insurance and pension funds into infrastructure," said Mukherjee, according to an official statement.

He called for strengthening the corporate bond market and developing credit enhancement mechanisms for accessing long term funds available with insurance and pension funds.

To enable greater flow of funds into infrastructure, he said government has taken up initiatives such as the "takeout financing" scheme of the India Infrastructure Finance Co Ltd, a government owned infrastructure lender.

The takeout financing scheme encourages commercial banks to lend more to infrastructure projects as they can sell a part of that loan to IIFCL after a shorter period.

Other measures to promote infrastructure funding include separate classification of infrastructure non-banking finance companies, and long-term infrastructure bonds with tax exemption up to Rs 20,000 for individual investors.

Mukherjee also stressed upon the need for regulatory changes that would help channelise greater amounts of foreign capital, mainly debt capital, to bridge the infrastructure financing gap.

As for 11th plan, ending 2012, the minister said he was hopeful of meeting the infrastructure investment targets.

In the first three years of the plan, the investment has been Rs 10,65,828 crore (Rs 10.658.28 billion), 7.1 per cent of the GDP and 109 per cent of the targeted expenditure for the period.

Investments in sectors such as electricity, telecom, irrigation and oil and gas pipelines have exceeded the target during the period, Mukherjee said.

The total bank lending to infrastructure has gone up from 8.7 per cent of total bank credit as at end-March 2008 to 10.8 per cent by end-March, 2010, the statement said.

The bond issuances by infrastructure companies have grown by 6.9 times between 2007-08 and 2009-10, it added.