Chicago, Jan 29: Pitching for foreign investment in the infrastructure sector which needs one trillion dollars in the 12th five-year plan, finance minister Pranab Mukherjee on Sunday asked the US investors to access the Indian debt market through a mechanism of regulated entities with a sustained long-term interest rate.
Meeting leaders of Fortune 500 companies here, he assured them that India has evolved a transparent and stable regulatory regime in sectors such as electricity, telecommunications, ports, airports, petroleum and natural gas, and a regulator for the coal sector is on the anvil.
He told them that India has recently liberalised foreign participation in the debt-equity market by allowing foreign investors to invest in the Indian equity directly.
Seeking a "greater degree of involvement" of foreign investors, Mukherjee said the "debt requirement for the infrastructure sector is very large."
He said India had recently evolved a mechanism to enable access to the Indian debt market through infrastructure debt funds which will be regulated entities with a sustained long-term interest rate, long horizon entities like pension and infrastructure and insurance funds.
The extent of foreign participation both through debt and equity in the financing of India's infrastructure has been of the order of around 8 to 10 per cent in the recent past.
According to a spokesperson, Mukherjee said that so far foreign participation has been 8 to 10 per cent through debt and equity and now from January 1, 2012 India has allowed qualified foreign investors to invest in Indian equity.
Under this major initiative, they can buy stocks of Indian companies.
"So far we are observing that FIIs (foreign institutional investors) outflow of funds in India was higher than the inflow in the previous few months but now recently it has been observed that this trend has also reversed," Mukherjee said.
FII investments in India are larger and their withdrawal of funds is also from Indian stock market because many foreign investors go outside India, where rates are lower, for investment because of high interest rates in India.
Now situation is under control and RBI has recently given benefits to the banks by reducing cash-reserve ratio from 6 per cent to 5.5 per cent, which means they have given more equity. Because every bank has to keep money with RBI, more liquidity will be allowed to the banks, the minister said.
In infrastructure sector, India needed around one trillion dollars during the 12th five-year plan and out of that 50 per cent has to come from the private sector, Mukherjee said.
India will be following PPP -- private, public partnership -- model, he noted.
"At present it is 30 per cent. The private sector participation has been raised to 50 per cent from 30 per cent out of total 1 trillion dollars which we require for infrastructure sector," Mukherjee said.
He said that despite world economy not being successful and facing uncertainty, Indian growth fundamentals are quite strong and India is expecting a growth rate of 7-8 per cent.
The finance minister said India's GDP growth is domestic demand driven and that external commercial borrowing is within the limits.
He also explained the need for PPP in low-cost energy projects, including new and renewable biofuels and solar energy. PPP represents a commercially attractive opportunity for foreign investors.
Nearly the whole infrastructure sector allows FDI to come from the automatic route to the extent of 100 per cent of investment, he said.
Besides, Mukherjee said, "we have standardised contract documentation which is required for these projects."
"... we have established unique and innovative financing instrument such as a scheme to support viability gap funding for PPP projects," he said.
Mukherjee also spoke about the Delhi-Mumbai Industrial Corridor, for which a huge investment is required. About 6-7 new cities will be set up on this corridor requiring buildings, construction etc.
Japan has committed $500 billion in various sectors like transport, metro and technology.
Mukherjee said that besides money, India needed technology. "We want to share new technology. We need transfer of technology because money alone will not be sufficient so technology is also required."
Mukherjee said US investors should come forward and take benefit of this opportunity.
He said that manufacturing sector should contribute 25 per cent to economy. The New Manufacturing Policy will aim at how to reach that target.
Mukherjee also said that India has become 34th country of the Financial Action Task Force to act against money laundering and counter-finance terror activities.
Those present at the meeting organised by the Chicago Council on Global Affairs (CCGA) included CCGA President Marshall Bouton; Stephen Chipman, CEO Grant for Thornton LLP; James A Gordon, President and Founder, Edgewater Funds; Brian Kenney, Chairman, President and CEO of GATX; Jennifer Scanlon, President International and Vice President USG Corporation; Matthew J Shattock, President and CEO of Beam Inc; Gordon Hunter, Chairman, President and CEO Littelfuse Inc; and Rajeev Gautam, President and CEO of UOP LLC - a Honeywell Company.
