Govt’s infrastructure projects abroad to get funds from foreign reserves

RBI and the finance ministry agreed to the concept of using forex reserves through a Temasek like SPV. This would function like a wholesale banking company and extend loans to Indian companies that use the same for infrastructure development either for financing equity investments or for even the purchase of equipment.

In fact, it also decided that the SPV would have an initial equity corpus of $100 million and would be located in either Singapore or London. In all around $5 billion of forex reserves would be transferred to this new company to finance projects that directly benefit India.

However, the lack of consensus on how to transfer funds had delayed any further action. Disagreement was in the interpretation of the clauses in the RBI Act with the central bank pointing out that the Act does not allow them to subscribe to bonds and only allows them to refinance the loans. As the finance ministry was in disagreement with this manner of transferring funds to the SPV, the matter was referred to the law ministry.

Sources said that section 13 of the Act has provisions that allows them to invest in bonds issued by such an SPV. It was this interpretation that the law ministry approved after even referring to the original purpose why this section was amended in 1978.

While the RBI is still to agree to this interpretation officially, officials said that this should be done soon especially once the law ministry has given its interpretation.