Central bank does U-turn on private infra support

The Reserve Bank of India, contrary to its earlier view, has suggested supporting private infrastructure through government guarantees in addition to market-based financing as measures for funding transport infrastructure and services in the country.

In a study released on “Financing Transport Infrastructure and Services in India”, the central bank says that the projects should draw on market-based financing as much as possible, while ensuring that sustainable/prudential norms are being followed.

The financing mechanism chosen for infrastructure support should encourage greater domestic savings for investment. Commercial banks should play the role of “wholesale financing/banking”, while the non-banking financial companies (NBFCs) should play the role of “retail financing/banking”.

In order to ensure the viability of operations, the banks should insist on financing either a firm or as an association/co-operative with a viable fleet and requisite infrastructure as a pre-requisite for lending to truck operators.

Norms for contractual savings instruments should be relaxed and demand for such funds should be created through the disinvestment of public sector entities, promoting private participation in infrastructure thereby increasing competition, reducing budgetary and management obligation.

Besides, resource gap from existing transport infrastructural facilities should be bridged by setting user charges (tolls) to economically efficient levels by working out an appropriate tariff strategy.

The study, in addressing the problems of financing of the road sector, has suggested creation of a Highway Development Fund to serve as an assured extra-budgetary source for funding highways. The fund is to be created by levy of cess on diesel, petrol, automobiles and automobile components.

Similarly, a Highway Infrastructure Savings Scheme should be started on the pattern of the National Savings Scheme with a view to providing assured funds to commercial roads. Toll revenues would make good the withdrawals from the scheme.

Meanwhile, the Resolution on Central Road Fund passed by the Parliament in 1988, which provides for 35.5 per cent of the accruals of the fund to be utilised by the Union government for the development and maintenance of national highways, should be implemented.

A road board should be set up at the national level (with similar boards at the State level) to plan and implement the highway programme in a time-bound manner, mobilise private funds from domestic/ international markets and maintain and manage the national and state highways, the report added.