The government is weighing a raft of proposals, including relaxing rules to enable insurance firms and pension funds to put in long-term capital in infrastructure projects, as it seeks to spur job creation and bring the Covid-hit economy back on track fast.
Extant regulatory norms effectively bar these investors, that bring in patient capital, from funding private-sector special purpose vehicles (SPVs), while most infrastructure firms are set up as SPVs. These long-term investors are also required to invest primarily in highly safe instruments.
These instruments, such as government and public-sector bonds, often fetch measly returns. Similarly, various institutional investors face restrictions in funding infrastructure projects that are not rated AA or above, even though most of these projects rarely have ratings of BBB or above.
“These anomalies between the reality and regulatory requirements are being addressed. While we certainly need more long-term capital, the government also wants to ensure any such step doesn’t pose risks to the broader financial system. Consultations with regulators and others are on and appropriate steps will soon be announced,” an official source said. Some of the remedies will likely feature in the FY22 Budget.
The Budget is also likely to unveil a development financial institution (DFI) with the specific mandate to finance large rural infrastructure projects that require long-term finance and could serve as antidote to general investment famine during economic downturns. It will work under an innovative framework, where private corporate funds and global patient capital will find viability in India’s rural projects. Also, there will be practical solutions to the issue of asset-liability mismatches faced by banks as they lend to long-gestation projects. FE
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