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The Centre will shortly frame a policy for infrastructure trust funds to facilitate flow of long-term funds to finance projects in the sector.
These trust funds are likely to be modelled on the real estate investment trusts that are popular in Hong Kong and Singapore, said Economic Affairs Secretary Arvind Mayaram at an event organised by Assocham. The structure of the funds will be finalised in the next two months.
Under the proposed structure, the underlying revenues of projects will be transferred to a trust, which will then issue units to investors. Both foreign and domestic investors can purchase these units. The Government may also look at providing fiscal incentives for such structures, Mayaram later told Business Line .
The Centre has taken several steps to help finance infrastructure, including the introduction of infrastructure debt funds (IDFs), to provide long-term funding for projects. The requirement of funds for infrastructure projects during the 12th Plan period is estimated at $1 trillion. The cost and tariff of infrastructure services are likely to go down as a result of low-cost long term debt provided by IDFs.
The income of IDFs is exempt from income tax. Also, withholding tax has been reduced from 20 per cent to 5 per cent on interest payments on borrowings of IDFs.
BANK LIMITATIONS
The major issue affecting the infrastructure sector is the absence of long-term funds. Banks typically lend for eight-nine years, whereas infrastructure projects require funding for a 20/25-year timeframe. Most banks have reached the ceiling norms for lending to certain sectors and are finding it difficult to lend for infrastructure in these sectors.This has led to a review of the policies afresh and the need to look at more innovative ways to finance and structure infrastructure projects.
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