CII for deepening long-term debt markets to aid infrastructure

New Delhi, Aug 27 (UNI) Deepening long-term debt markets and facilitating availability of long term debt capital to finance infrastructure, is the key to sustain the current levels of economic growth in the long-run, the Confederation of Indian Insustries said today.

There is a primary need for infrastructure development in the country in order to sustain a plus eight per cent growth rate of the economy in the long run.

The Chamber had earlier estimated that India would need 331 billion dollars in the next five years for infrastructure development, but CII feels that it would be a herculean task to raise the level of funding required for infrastructure development.

Worldwide, capital markets contribute a major chunk of funding for infrastructure development, however, in India, capital markets provide sources of financing for infrastructure development in a limited sense through equity.

With the lack of markets for long-term funds, India is starved of long-term capital, which is a necessary condition for infrastructure development.

Deepening the capital markets will go a long way in creating capital for infrastructure funding as well as for financing industry in general. Hence, there is an urgent need to deepen the longer-term debt markets to enable banks and development finance institutions (DFIs) participate in infrastructure financing.

Currently, banks and DFIs are not funding long term projects due to an asset-liability mismatch in the short term. Hence, creating tradable debt-based securities would be a major area of reform to address the issue of infrastructure financing in India.

Moreover, CII observes that in comparison to the equity market, debt markets, especially long term debt markets, are not well developed in India. In this context, CII feels that supportive steps should be taken to deepen the bonds market to cater to the need of the infrastructure sector in the country, in line with the Dr R H Patil Committee Report on 'Corporate Bonds and Securitisation.' Listing procedures, enhancing issuer base and investor base, enhancing liquidity in the debt markets, taxation issues pertaining to securitised papers and credit enhancement are some of the major areas requiring focus in deepening the debt markets.

In addition to this, CII feels a strong case for the creation of specialised debt funds for infrastructure financing. CII supports the suggestions on regulatory changes made by the Patil Committee report.

To enable rupee debt funds, to allow domestic QIBs, to commit capital to the corpus of close-ended infrastructure debt capital funds, to register debt fund with maximum requirement of 33.33 per cent to be listed debt securities at par with SEBI registered Venture Capital (VC) funds, to have same tax treatments on debt funds as VC funds, etc, are some of the suggestions the Chamber supports.

Further, investments in SEBI registered debt funds may be treated in the same manner as bank investments in bonds and/or debentures, and this could be accorded the same risk weightage as applicable to normal infrastructure credit.

To encourage the widest possible participation for domestic financial institutions, IRDA, the Central Board of Trustees of the EPFO and the PFRDA could also modify their respective investment guidelines to permit insurance companies, provident and gratuity funds, and pension funds respectively to invest/ commit contributions to SEBI registered infrastructure debt funds.

Deepening the debt markets alone will provide for the major chunk of funding for infrastructure development and in the longer run, will also pave the way for the small and medium size industries, that do not have very high debt rating to raise low cost debt capital, CII concludes.

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