Union Finance Minister Pranab Mukherjee today said that setting up of Infrastructure Debt Funds (IDF) through public-private partnership (PPP) would meet the long-term need of infrastructure funding in the country.
Speaking after a memorandum of understanding (MoU) was signed here in his presence for setting up India's first IDF, Mukherjee said he was confident that the stablishment of such funds in the PPP mode would be a guiding principle for future activities in this area.
According to him, funds to the tune of $ 1 trillion would be required for infrastructure sector funding in India in the next five years, out of which 50 per cent would come from the private sector through the PPP mode.
The MoU for the new IDF, structured as a non-banking finance company (IDF-NBFC), was signed by Chanda Kochar, Managing Director, ICICI Bank, Pramit Jhaveri, CEO, Citibank, M.D. Mallaya, CMD, Bank of Baroda and Sushobhan Sarkar, MD, Life Insurance Corporation (LIC).
Others present on the occasion included Planning Commission Deputy Chairman Montek Singh Ahluwalia, Planning Commission Member Gajendra Haldia, Finance Secretary R.S. Gujral, Economic Affairs Secretary R. Gopalan, Expenditure Secretary Sumit Bose, Disinvestment Secretary Haleem M. Khan, Secretary, Disinvestment and Bimal Julka, Additional Secretary cum Director General, (Currency), Ministry of Finance.
The Finance Minister in his Budget Speech for 2011-12 had announced setting-up of IDFs in order to accelerate and enhance the flow of long-term debt in infrastructure projects for funding the government's ambitious programme of infrastructure development. To attract off-shore funds into IDFs, he had also announced that withholding tax on interest payments on the borrowings by the IDFs would be reduced from 20% to 5%. Income of the IDFs has also been exempt from income tax.
The framework for establishment of IDFs was announced by the Ministry of Finance in June, 2011 wherein IDFs were allowed to be set up either structured as an NBFC or as a mutual fund. Reserve Bank of India (RBI) issued the regulations for IDFs to be set up as a NBFC in November, 2011 and Securities Exchange Board of India (SEBI) issued the regulations governing an IDF structured as a mutual fund in August, 2011.
ICICI Bank (together with a wholly-owned subsidiary), Bank of Baroda, Citi and LIC will hold 31%, 30%, 29% and 10% shareholding, respectively, in the IDF-NBFC. The IDF would seek to raise debt capital from domestic as well as foreign resources and would invest in infrastructure projects under the PPP model that have completed one year of operations. The IDF will expand and diversify the domestic and international sources of debt funding to meet the large financing needs of the infrastructure sector, thereby giving an impetus to the creation of the infrastructure necessary to drive India's growth, an official press release added.
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