Stage set for civic bodies to raise funds from market

The Cabinet Committee on Economic Affairs today gave its approval to set up a pooled finance development fund...

The Cabinet Committee on Economic Affairs today gave its approval to set up a pooled finance development fund PFDF 8212; a special purpose vehicle to allow municipal corporations of small and medium towns to raise money from the capital market.

This will allow municipal corporations of a state to collectively raise money from the market. Most city corporations currently can8217;t raise matching funds to avail of the Centre8217;s National Urban Renewal Mission grants for infrastructure projects because of poor fiscal discipline, mounting debts and low tax collection.

PFDF will provide credit enhancement to urban local bodies to directly access market borrowing through a state-level pool finance mechanism.

The municipal bonds issued under this mechanism will be eligible for tax-free status. To meet this objective through a single agency, a special pool for finance entity SPFE will be set up in each state to build market access. While several big cities like Ahmedabad, Indore, Nagpur and Ludhiana have already entered the capital market, PFDF is expected to help smaller towns in pumping up the financial resources of urban corporations.

At present, Tamil Nadu is the only state to have entered into a pool finance mechanism without the backing of a government guarantee. Most loans to corporations are usually underwritten by the state.

The Centre has already allocated Rs 400 crore for this fund under the 10th five-year plan. About five per cent will be utilised for project development assistance and 95 per cent for the credit rating enhancement fund to improve grade. About 75 per cent is expected to be reimbursed by the Centre, and the remaining 25 per cent would be borne by the state government8217;s urban local bodies. Ceiling for development fund grant is Rs 50 lakh for town with population of 10 lakh and about Rs 25 lakh with less than 10 lakh. The ceiling amount for Delhi, Mumbai, Chennai will be Rs 1 crore.

Rs 16-crore package for distressed farmers

NEW DELHI: THE Union Cabinet on Friday cleared a Rs 16,978-crore relief package for distressed farmers in the states of Andhra Pradesh, Maharashtra, Kerala and Karnataka. The package, first promised by PM Manmohan Singh at the time of declaring relief measures for Vidarbha farmers, includes credit measures as well as schemes for improving agricultural infrastructure and farm practices.

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Finance Minister P. Chidambaram said: 8220;The package includes Rs 10,579 crore as subsidy and grants, and loans of Rs 6,399 crore. The Rural Infrastructure Development Fund will provide Rs 3,207 crore for 2,565 minor irrigation schemes, while Rs 832 crore will be provided under the Accelerated Irrigation Benefit Programme AIBP for 13 medium irrigation projects. Another Rs 5,697 crore for 12 major projects would be funded under the AIBP.8221;

While the package for these states will be implemented over three years, Chidambaram pointed out that the demand for a suitable package for two more districts of Kerala 8212; Idukki and and Alapuzha 8212; is being looked into. 8220;A separate rehabilitation package for the area8217;s needs is being worked out. Five elements have been identified after the Agriculture Minister8217;s recent visit to the state to understand the ground situation and a package on those lines will be worked out separately,8221; Chidambaram said. 8212; ENS