Ease FDI norms for SWFs, pensions funds to seek more investments for infra boost: Report

In a bid to raise resources to meet massive infrastructure development goals, a finance ministry-constituted task force has suggested the government to simplify "procedural aspects" of foreign investment in infra projects by global pension and sovereign wealth funds.

The Task Force on National Infrastructure Pipeline (NIP) has pegged the total investment requirement for the infra projects during 2020-25 at Rs 111 lakh crore.

Among other things, the panel has suggested deepening bond markets, setting up of development finance institutions (DFIs) and land monetisation to meet the funding needs of the infrastructure sector.

The task force, headed by Economic Affairs Secretary Atanu Chakraborty, submitted its final report to Finance Minsiter Nirmala Sitharaman on Wednesday.

Measures should be taken by "ministries and regulators to simplify the procedural aspects of FDI investment in infrastructure by sovereign wealth funds/global pension funds, improving the ease of investing", said one of the suggestions of the task force with regard to funding of the infrastructure sector projects in coming years.

Sovereign wealth funds (SWFs) and global pension funds (GPFs) are characterised by interest in longer term returns, with focus on stable, predictable cash flows, especially on dividend flows.

They tend to invest in greenfield projects and in developing countries and manage risks through co-investment in partnership with domestic sovereign wealth funds and institutional investors.

The panel appreciated the measures announced in the Budget 2020-21 to attract investment from SWFs and GPFs for development of infrastructure sector projects.

These include elimination of dividend distribution tax and 100 per cent tax exemption to their interest, dividend and capital gains income with respect to investment made in infrastructure and other notified sectors before March 31, 2024 and with a minimum lock-in period of three years.

"It is expected that these measures will provide significant change in the perception of sovereign wealth funds/global pension funds towards infrastructure investments in India and will lead to significant inflows, the report said.

The report emphasised that foreign direct investment policies should promote the use of low-cost capital from foreign investors to fund assets in India, especially in crucial infrastructure sectors.

"Measures such as developing model investment agreements in line with international standards and best practices, consistent, fair and unambiguous enforcement of investment terms through efficient investment protection and neutral investor arbitration claims mechanism and creation of non-ambiguous tax and repatriation frameworks and systematic framing of FDI-linked performance condition will aid in improving the FDI inflows in India," it said.

Besides, it said while these measures may be expedited, the task force recommends that the government take suitable measures to make bond issuances by infrastructure companies attractive.

The task force also recommends that the announcement proposing setting up of the Credit Enhancement Guarantee Corporation be expedited, as this is expected to support growth of the bond market for infrastructure projects.

The report suggested that for faster growth to meet the target of USD 5 trillion economy by 2025, more supply-side reforms like deepening bond markets, setting up of DFIs and land monetisation are needed.

DFIs bring in a balanced approach to lending towards critical projects, while leveraging on their policy/institutional strengths to mitigate risks, thus creating an efficient source of capital.

DFIs in infrastructure are sector-specific national-level ones play an important role in railways, power and roads sectors, whereas state-level DFIs are largely in the urban sector.