The proposal of the Deepak Parekh Committee to set up the India Infrastructure Debt Fund (IIDF) as a venture capital fund (VCF) would require changes in regulatory norms by market regulator Securities & Exchange Board of India (Sebi). The proposed fund, which will have an initial corpus of Rs 50,000 crore ($10.7 billion), will be set up as a VCF managed and regulated by Sebi, reported Economic Times today quoting the report submitted with the Planning Commission.
This would require an amendment in the current Sebi guidelines, where only a part of VCF is allowed to be invest in debt.
Besides changes in the Sebi norms, the expert panel headed by HDFC chairman also seeks changes in the laws by Reserve Bank of India, which would need to create a special window for foreign debt with a tenure of 10 years or more. Insurance watchdog Irda, and pension fund regulator PFRDA will also be required to make investment in IIDF eligible. Around 40% of the Rs 50,000 crore is expected to come from foreign investors like overseas pension, insurance and sovereign wealth funds, and the rest from domestic players.
The government is also in discussions with Singapore state investor Temasek to set up a $2 billion road fund, said a report in Wall Street Journal quoting Road, Transport and Highway Minister Kamal Nath.
India may require $1.7 trillion in the decade starting 2010 to meet infrastructure demand and keep pace with economic growth and urbanisation, said a report by Goldman Sachs. Of this, power and roads alone may require upwards of $700 billion.
The report added it expects returns on private investment in infrastructure to rise on the back of ‘increasing returns to scale’ and falling costs. Goldman Sachs also said that rising domestic
savings rate and robust balance sheets should allow India to meet its massive infrastructure financing needs domestically, without significant recourse to external capital.
The proposed fund could help bridge the equity gap in the infrastructure financing space and help overseas investors get an opportunity to invest in the Indian infrastructure opportunity.
Earlier initiatives have included a proposed $5 billion India Infrastructure Fund, which was set up by IDFC, Citigroup and private equity major Blackstone. The target for this fund was later cut down and Blackstone later pulled out of the projects. Currently it invests out of a $930 million corpus in India.