The government on Tuesday said that the private sector will be allowed to raise resources by issuing long-term infrastructure bonds carrying tax benefits.
"It (proposal to issue long-term infrastructure bonds) will of course be for private sector as well as public sector," Finance Minister Pranab Mukherjee said in his address to a conference on infrastructure sector here.
In order to promote investment in the infrastructure sector, the Budget for 2010-11 proposed to exempt investment up to Rs 20,000 in long-term infrastructure bonds from income tax. The amount is in addition to the existing overall tax exemption limit of Rs 1 lakh per annum for personal income tax payers.
The long-term infrastructure bonds entitled for the benefit would be notified by the government later.
Noting that funding was a major constraint, Mukherjee said, the decision will help in augmenting resources of public as well as private sector for developing the country's infrastructure.
The investment requirement for the infrastructure sector was pegged at $500 billion during the Eleventh Plan (2007-12) and is expected to double to over $1 trillion in the Twelfth Plan (2012-17).
Mukherjee said the government plans to revamp state-owned infrastructure financing company IIFCL for facilitating financing of infrastructure projects.
"We propose to gradually refashion IIFCL as a force multiplier for this sector. In recognition of the critical importance of developing a healthy and vibrant corporate bond market for financing infrastructure, we intend to work in a focused manner to implement in letter and spirit the recommendations of the various expert committees," he said.
Further, the government has set up a standing committee on infrastructure finance under the chair of Finance Secretary Ashok Chawla that will regularly interact with developers, financial sector entities and regulators, Mukherjee said.
The committee would work towards gradually resolving the outstanding issues related to insurance and pension sectors, equity markets, banks and other financial institutions. Mukherjee said gross capital formation in infrastructure in the first two years of the 11th Five Year Plan period (2007-12) has been on expected lines.
"However, this is not to say that problems do not remain. We remain constantly aware of the magnitude of the unfinished agenda in infrastructure," he said.
Mukherjee flagged burgeoning power deficit, perilous financial health of the state utilities, bottlenecks in fuel availability, slow capacity addition and poor efficiency of the ports, investment backlog in the railways, and low penetration of broadband services among areas of concern for the country's infrastructure sector.
"Finally, in addition to the challenge of financing suitable talent in key sectors such as health and education, there is a significant shortfall in social infrastructure in terms of school buildings, school amenities, health centres, medical equipment and so on," he said.
The asset-liability mis-match and sector-exposure caps of banks and other financial institutions limit fund availability for key infrastructure sectors such as power, telecom and roads, the Finance Minister said.
Though government's efforts to strengthen bank capital would help in this regard, he said the full potential of insurance and pension funds for deployment in infrastructure projects has not yet been successfully exploited. Equity availability, both domestic and foreign direct investment, continues to remain an area of concern, Mukherjee said.
"We shall have to meet the challenges and continue to maintain our steadfast commitment to infrastructure development, which is essential for returning to our earlier growth trajectory of about 9 per cent per annum and eventually cross the double-digit growth barrier," he said.
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