IIFCL likely to get capital infusion of Rs 1,000 cr

The finance ministry is likely to infuse an additional equity capital of Rs 1,000 crore into India Infrastructure Finance Co Ltd (IIFCL), as the government plans to further boost infrastructure financing through this state-owned entity.

This capital infusion, according to a finance ministry official, will help the company to borrow an additional debt capital of Rs 6,000 crore and also enable IIFCL to fund more infrastructure projects that are facing problems in raising finances.

At present, IIFCL has a paid-up equity capital of Rs 1,000 crore. The company offers long-term financial assistance to infrastructure projects and any borrowings by IIFCL is backed by sovereign guarantee.

Meanwhile, Finance Minister P Chidambaram said the Planning Commission had prepared a note on channelling more funds to infrastructure through IIFCL. The note was submitted at a meeting called by prime minister on Monday to review the macroeconomic environment in the background of the global financial crisis.

As the note requires more study, Chidambaram said both the Reserve Bank of India (RBI) and the department of financial services within the finance ministry would further examine the proposal.

The meeting, which was attended by the finance minister, commerce minister and deputy chairman of the Planning Commission, has also asked the departments of revenue and financial services to look at export-specific issues. A separate meeting chaired by the prime minister will be convened next week to discuss on problems faced by the export industry, Chidambaram said.

According to initial government estimates, export has fallen by 15 per cent this October despite the Indian rupee falling by more than 20 per cent in the current fiscal. Exporters were citing low demand and difficulty in getting export credit for the dip in exports.

On the question of inflation, Chidambaram said the meeting looked at a report which painted various alternative scenarios between now and March 2009, adding that, “the overall impression is that inflation is likely to trend down”. However, he declined to mention the range of these likely scenarios.

Inflation, as measured by the wholesale price index (WPI), fell to single digits level of 8.98 per cent for the week ended November 1, the first time in five months. A fall in inflation, according to economists, provides a window for the central bank to further bring down the interest rates, a key demand by industries who are complaining of higher cost of borrowing.

On the question of fiscal stimulus, Chidambaram said the government had provided Rs 1,05,000 crore as cash expenditure in the supplementary budget demand submitted recently, adding that is the ‘fiscal stimulus’ for the Indian economy. Further, departments and ministries that are able to spend their budgeted expenditure will be permitted to tap further funds from the budget, he added.

The prime minister also expressed satisfaction at the steps taken by the RBI while reacting to the global financial crisis.

At the same time, the central bank was asked to keep a constant vigil on the emerging situation and respond fast, said Chidambaram.