The Financial Stability and Development Council (FSDC) headed by the Finance Minister, Mr Pranab Mukherjee, has pitched for immediate establishment of infrastructure debt funds (IDFs) in the country.

Setting up such vehicles would help the private sector raise half of the trillion-dollar outlay envisaged for infrastructure development during the 12th Five-Year plan (2012-17), the FSDC noted at its meeting held here at the North Block today.

Although the Finance Ministry had recently finalised the broad structure of such funds, both the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) are yet to come up with their respective guidelines/regulations on IDFs.

The FSDC's emphasis on the need to immediately establish IDFs may now encourage the RBI and SEBI to hasten the process of framing their respective guidelines on the same. The Finance Ministry had on June 24 announced that IDFs could be established either as trusts or as companies.

A trust-based IDF would basically be a mutual fund that would issue units, whereas a company-based fund would be an NBFC that would issue bonds to domestic as well as foreign investors. While trust-based IDFs are to be regulated by SEBI, IDFs set up as NBFCs would be under the ambit of the RBI.

For industry to raise funds for debt funds for infrastructure, the FSDC recognises that corporate bond market should be developed. Reviewing the action taken on the decisions taken in the two meetings of the sub-committee of FSDC, it was decided today that steps would be taken to make the corporate bond market more vibrant.

At the FSDC meeting today, which was the third since its establishment in December 2010, it was also decided that the Government should strengthen its interaction with the credit rating agencies. For better interaction with the agencies, it was decided to further broad base the process and present India's case for higher rating by studying the methodologies adopted by the rating agencies.

The FSDC also noted the recent structure that has been put in place in the Finance Ministry for the exchange of information with the credit rating agencies.

On the issue of monitoring financial stability, it was decided that the regulators would share their assessments in the sub-committee of the FSDC and with the secretariat of FSDC and discuss the same in the Council. This process will be an input in their reports on assessment of financial stability.

Economic outlook

On the state of the economy, the general consensus was that while inflation may not be conducive to short-term economic growth, India's medium- to long-term economic growth prospects remain bright. In the short term, it is necessary to tackle inflation, the FSDC has said.

The Council noted that investment as a percentage of GDP is encouraging and this should help growth prospects. The provisional tax collection figures for the first quarter of current fiscal are encouraging and they give reason for optimism on growth and meeting the fiscal targets, the FSDC has said.

Today's FSDC meeting was attended by the RBI Governor, Dr D Subbarao; the SEBI Chairman, Mr U.K. Sinha; the PFRDA Chairman, Mr Yogesh Agarwal; the IRDA Chairman, Mr J. Hari Narayan; besides senior Finance Ministry officials.

The FSDC was set up last year to strengthen and institutionalise the mechanism for maintaining financial stability, financial sector development and inter-regulatory coordination.

krsrivats@thehindu.co.in

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