There is a definite need to liberalise investment norms of contractual savings instruments,according to a Reserve Bank of India study.
Pre-empted use of these funds by the Government (through requirements to invest in Government securities) has been a major impediment to the development of contractual savings as a source of long-term finance, the study on Financing Transport Infrastructure and Services in India said.
Contractual savings are savings in the form of regular payments into long-term investments,such as pension schemes. They form one-third of the financial savings of the households in India.
While such a liberalisation of norms represents the sources side from the flow of funds perspective,the demand for such funds needs to be created through a well-planned programme of disinvestment of public sector (especially infrastructure) entities with a view to promote private participation in infrastructure,to reduce budgetary and management obligation and to promote competition,it said.
The study said setting user charges to economically efficient levels should be an important element of an infrastructure financing strategy. This has to be true not only with respect to services provided by the railways and road transport (the major modes) but also in regard to roads in which case though user taxes do represent genuine user prices to a large extent,many governments have never seen it fit to set these taxes in accordance with accepted public utility pricing principles, it said. Public ownership,operation and direct financing of infrastructure is often not necessary. Accordingly,in funding infrastructural deficits,it is desirable to draw on market-based financing as much as possible,keeping in view sustainable/prudential norms.
The RBI study said these entities can rely on their stable and longer-term revenue profile in issuing debt securities,especially ling-term debt instruments. Such debt instruments helps set important benchmarks for the longer and of the debt market and provide attractive opportunities for contractual saving institutions. This objective may be met by devolving investment responsibilities to autonomous agencies,which are better positioned to gauge users investment priorities.
In the case of the railways as well as public sector road transport services,there is a need for systematic pruning of those subsidised services that do not reach the target groups,it added.