Fis Roped In To Draft Core Sector Plan

IDBI to set up inter-institutional group to examine financing optionsOur Economy Bureau

Financial institutions and banks will play a leading role in formulating a comprehensive policy for the infrastructure sector. This was decided at a meeting of different government departments, financial institutions and banks presided over by cabinet secretary T S R Subramanian in New Delhi yesterday.

The meeting even decided the modalities on the involvement of FIs in policy making.

It decided to make Industrial Development Bank of India the co-ordinating institution to resolve the problems facing the infrastructure sector. The financial institution has been authorised to set up an inter-institutional group (IIG), consisting of representatives of all FIs and major banks. This group will hold regular interface with infrastructure ministries like power, telecommunications, ports, roads and buildings, besides the finance ministry.

IIG will have four sub-groups, one each dealing with power, ports, telecom and roads & bridges. The sub-groups will interact with private investors and make recommendations to IIG to resolve the problems in infrastructure.

Infrastructure ministries will involve representatives of financial institutions in their internal committees for evolving policy measures.

The two-way flow of information and views will help investors, lenders and government departments understand one anothers difficulties and provide the necessary inputs in the formulation of implementable policies. Based on these recommendations, the finance ministry will initiate follow-up action.

Subramanian set the tone of the 150-minute discussions by stating that the government was determined to sort out the problems relating to co-ordination in the area of infrastructure financing and development.

Representatives of financial institutions sought to highlight the problem of co-ordination by pointing out the delays caused in financing telecom projects due to the issue of assignability of telecom services licences. Financing of telecom projects could have started at least six months ago, if the assignability issue had been sorted out before awarding licences to operators.

Among those who attended the meeting were finance secretary Montek Singh Ahluwalia, secretaries of infrastructure ministries, chiefs of institutions and banks such as IDBI chairman & managing director S H Khan, K D Agarwal of Industrial Finance Corporation of India, Deepak Parikh of Infrastructure Development & Finance Company, M S Verma of State Bank of India and Rashid Jilani of Punjab National Bank.

It was generally felt that FIs and banks were in a position to meet most of the immediate requirements of infrastructure projects, but would find it difficult to meet all the requirements if the sector grew at a rapid pace.

There was a presentation by IDBI on what has been done so far in financing infrastructure projects and what more needs to be done in the areas of power, ports, roads and telecommunications.

There was extensive discussion between government representatives and financial institutions on financing infrastructure projects, risk mitigation, bankability of projects and clarity of government policies.

Later, a delegation of representatives of the Federation of Indian Chambers of Commerce and Industry (Ficci), Associated Chambers of Commerce (Assocham) and Confederation of Indian Industry (CII) gave its perceptions of problems and bottlenecks in the infrastructure.

Prime Minister I K Gujral will meet captains of industry, besides chief executives of banks and financial institutions, on July 22 to discuss strategies for strengthening the infrastructure sector. The strategy is expected to outline the methodology for removing the bottlenecks that impede the flow of investments in sectors like power, road, oil, telecom and ports. Some of the points made by FIs during the discussions were:

* Institutions face maturity risks in infrastructure projects which need funds for 10-15 years. FIs usually raise funds for five-seven years.

* Infrastructure projects will generate revenue in rupees. It is, therefore, difficult to meet a larger quantum of long-term fund requirement through foreign currency loans. After all, a project could not take forward cover for 10 years.

* High licence fees have made it difficult to structure finance for telecom companies which are bound to suffer cash losses for the first two-three years.