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Infra bonds to provide the required long-term funding


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Projects Info analyses the impact of the flood of infra bond issuances on the growth of Indian Infrastructure Ford Figo: Proud M oment Awarded Indian Car of the Year 2011 Request a Test Drive Today!
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Our Mumbai Bureau A major area of concern for sustaining the real gross domestic product (GDP) growth in India has been the lack of adequate infrastructure. The woefully low levels of public investment have rendered India's physical infrastructure way behind many other emerging economies across the globe. This necessitates increased focus on financing of basic physical infrastructure including power, road and water. Finance Minister Pranab Mukherjee has earmarked Rs 1.73 trillion, about 46 percent of total investment allocations, for the infrastructure sector, in the current fiscal year. Indian banks mainly provide short-term loans which are often inadequate for financing projects having long tenure. Raising funds through infrastructure bonds is not very popular in India due to the relatively under-developed domestic bond markets and the long gestation nature of infrastructure projects. To make these bonds attractive to investors, so as to augment the funds flowing into the infrastructure finance, government provides tax incentives for investments in infrastructure bonds. These bonds are the first of its kind since the finance minister has announced a new section 80CCF, which entitles a tax payer to exemptions on money invested in infrastructure bonds. On an investment of Rs 20,000, an individual in the 30 per cent tax bracket can save Rs 6,000 of tax and earn an annual interest in the range of 8 per cent. Market is poised for a flood of infra bond issuances in the coming months. Recently Industrial Finance Corporation of India (IFCI) had completed a private placement of unsecured redeemable, non-convertible long-term infrastructure bonds and has garnered Rs 100 crore. IDFC aims to raise Rs 3400 crore through infra bonds, which are open to retail and institutional investors. LIC has a mandate to raise up to Rs 5,000 crore through infrastructure bonds, which is 25 per cent of its Rs 20,000 crore incremental investment in infrastructure in the previous financial year. ADB plans to enter the Indian debt market early next year to raise funds through rupee bonds to finance private sector infrastructure projects. Long term funding perspective "Infrastructure projects in India are in dire need of long term funds for long tenure projects. Infra bonds provide the much needed long term finance for crucial projects into the energy, transport and water infrastructure and at the same time serve as a tax-saving instrument for investors. The flow of private and retail funds into the sector through infrastructure bonds will definitely provide a boost to the major infrastructure projects in India. Currently the spending on infrastructure is 8 per cent of GDP and the share of private investment is 40 per cent which is substantially higher than 0.6 per cent few years back," explained Dr Rajiv Lall, MD and CEO, IDFC, during the launch of the bond issue.

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4/14/2011
launch of the bond issue.
Tags: Infra,

Projects Info - Infra bonds to provide th

Bonds, Infrastructure , GDP , Investment, Pranab Mukherjee , Funds, Tax, LIC, IFCI, IDFC, ADB, Rajiv Lall , Retail

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Infra bonds to provide the required longterm funding

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