The Government plans to extend sovereign guarantee to private sector borrowings for large-scale infrastructure projects. The move will significantly reduce India Inc’s cost of funds and provide private corporations a huge incentive to continue with their investment plans in uncertain times. Hitherto, government guarantees have been the exclusive preserve of public sector undertakings.Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, and the Prime Minister’s ‘sherpa’ or chief coordinator at the Summit on Financial Markets and the World Economy at Washington DC said on Saturday that the government has to do “more than it would do under normal circumstances” to avoid a deterioration of India’s growth prospects. “A sovereign guarantee will help,” he said after a working dinner meeting hosted by US Treasury Secretary Henry Paulson.India hopes to beat the global slowdown through counter-cyclical devices such as increased public expenditure, higher draw-downs from multilateral institutions such as the World Bank and sovereign guarantees to private corporations. According to government estimates, the funding needs of the infrastructure sector are estimated to be a whopping $500 billion over the next five years. Higher infrastructure spend, India believes, will boost domestic demand and help the country tide over the global crisis.Jayesh Desai, Head, Infrastructure, Real Estate and Government Services in global consulting firm Ernst & Young, said, “This is truly amazing. The cost of funds will drop by at least 100-150 basis points.” Ahluwalia said the International Bank for Construction and Development (the World Bank) had said it would extend $100 billion in loans to developing countries. For the current year, though the Bank has committed $3 billion, it plans to top it up with another $3 billion. It will, over the following two years, continue to bring $3 billion each year, above the normal development expenditure.When asked if the government had enough fiscal headroom to increase public expenditure, he said: “We can ignore fiscal and revenue deficits in the current context where growth is a major concern.” The Fiscal Responsibility and Budget Management Act binds the government to cut the Centre’s fiscal deficit by 0.3 per cent a year.
