Centre to float Rs100 crore infrastructure fund to aid state governments

Mumbai: The central government has announced the setting up of an infrastructure development fund with a corpus of Rs100 crore to help state governments take up preparatory work of projects under public-private partnership (PPP).

The fund, to be called India Infrastructure Project Development Fund, would bear 75 per cent of the costs of projects till the bidding stage, finance minister P Chidambaram said at a conference of state chief secretaries.

"It would be a revolving fund that will get replenished from successfully bid projects. In case it needs to be topped up, it would be topped up through budgetary support," he said.

For successful projects, the assistance given to states would be treated as interest-free loans while for failed projects the amount would be converted into grant. States can in turn recover the money from the successful bidders, he said.

The finance ministry will send the proposal for setting up the fund to the cabinet committee of economic affairs after approval by the finance minister, sources at the ministry said.

While the government is banking on private equity inflows, Chidambaram said the finance ministry is also in talks with the Reserve Bank of India to provide $5 billion from the forex reserves for infrastructure projects.

The RBI is estimated to have foreign exchange reserves in excess of $218 billion as of July 6, he said, adding, "This will make available another $5 billion a year for infrastructure."

He said the country would require $475 billion investment in infrastructure during 2007-12, higher than an earlier estimate of $320 billion.

While "private investment need is $18-20 billion a year," he said, global private equity funds are keen to invest in India's infrastructure projects.

Earlier during the year, private financial institutions such as Citigroup, Blackstone, Infrastructure Development Finance Company Ltd. and India Infrastructure Finance Company (IIFCL) together launched a $5 billion infrastructure fund while another private equity firm 3i tied up with IIFCL to set up another infrastructure fund.

Chidambaram said, while "similar other initiatives are waiting to be launched in India," states should come up with bankable projects to attract private investment.