An emboldened Manmohan Singh government is poised to push through its next set of big-ticket economic reforms at a Cabinet meeting scheduled for Friday. These will include setting up a National Investment Board (NIB) headed by the Prime Minister to fast-track approvals for mega-infrastructure projects involving an investment of over Rs 1,000 crore and a hike in the foreign direct investment (FDI) limit in the insurance sector to 49 per cent from 26 per cent.
As part of the fresh wave of reforms, the finance ministry now wants to operationalise the infrastructure debt funds (IDFs). The ministry has finalised a model tripartite agreement to be entered into by IDFs through the non-banking financial company (NBFC) route. According to the proposal, the IDFs, to be set up as NBFCs, would have to enter into tripartite agreements to which the concessionaire, the project authority and the IDFNBFC would be parties. Two consortiums-one led by ICICI Bank and the other by IDBI Bank-have secured approvals for setting up IDFs via the NBFC route. The ICICI Bank consortium alone has the capacity to set up a $2 billion fund.
Main players of 1991 reforms come together again
Banks are reluctant to extend finance to infrastructure projects due to their long pay-back period. The multi-billion dollar IDF structure would enable the flow of insurance and pension funds at a competitive cost to provide long-term debt in public-private partnership (PPP) projects such as roads, ports, airports, railways and metro rail.
The proposal for setting up an NIB is the brainchild of finance minister P. Chidambaram. He had pointed out during the full meeting of the Planning Commission recently that "such an approval mechanism was essential as a truly final decision on projects does not emerge for many years under the current dispensation".
According to the proposal, NIB's authority should extend to the proposals for projects where investment is above a threshold of Rs 1,000 crore as these large projects, if implemented, can increase the economic growth rate.
Chidamabram is of the view that once the final decision is taken by the NIB, no other ministry or department should be able to interfere with that decision or delay implementation.
The Cabinet will have to approve the change in government's business rules to vest the authority to take the final decision. Currently, business rules allocate the authority to take final decision to one or more ministries depending on whether the project is in power, highways or ports sector.
Chidambaram also wants to keep up the reforms momentum with the hike in the FDI ceiling in the insurance sector.
Courtesy: Mail Today