India to Boost Infrastructure Investment Through Trust Fund

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Sept. 24 – The Indian government is currently working to set up a long-term infrastructure trust fund that would be open to both foreign and Indian investors – which would be similar to the real estate investment trusts in countries such as Singapore, Hong Kong and the US – by the end of this year in a move to boost further investments into the country’s wavering infrastructure sector.

Over the past years, India’s infrastructure sector has struggled to secure financing for projects since banks have been unwilling to lend because of policy constraints and since private investors have also been hesitant to provide funding due to the recent volatility within the country. This is where such a trust fund would come in.

Essentially, this trust fund will have long-term investments in infrastructure projects and will also sell its shares to the public as units. Revenues or profits from these infrastructure projects will flow into these units as returns, and the funds generated will also be used to pay down debt on future infrastructure projects.

Off-shore institutional investors, off-shore high net worth Individuals and other institutional investors will be allowed to invest in the fund.

Arvind Mayaram, secretary, Department of Economic Affairs, notes: “A major reason why some PPP (public-private partnership) projects in the infrastructure sector have run into problems is that many private partners did not price the risk in projects over a 25-year time frame. We are looking to set up an infrastructure trust fund in two months to ensure the long-term management of projects.”

“A need has been felt to look at some of the policies de novo and also to look for more innovative ways to finance and structure infrastructure projects,” he added.

Specific moves that the government have made in the infrastructure sector include boosting investments into roads, with the Ministry of Road Transport and Highways looking to award a large number of road projects through the engineering, procurement and construction (EPC) model this year. Under the EPC model, the government foots the entire bill required to build such projects (in this case, roads).

“We are planning to award 6,500 km of road projects on the EPC basis this year,” Vijay Chhibber, secretary, Ministry of Roads, confirmed.

The government had awarded close to 3,055 km of road projects through the EPC model back in 2005-06, but that number has dropped drastically to less than 500 km since then. On the other hand, a total of 6,400 km of roads through BoT projects have been granted since 2011-12 alone.

In addition, the government is looking to set up a fund to promote debt and equity investment in the infrastructure sector. “There will be greater deepening of the equity and bond markets for financing the infrastructure sector in the next few months,” Mayaram said.

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