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THE government must spread long-term savings such as insurance and pension funds across the infrastructure sector by lifting curbs on big-ticket investments, a move that will help meet the lofty investment targets set by the Eleventh Five-Year Plan, the Economic Survey said. The Five Year Plan for 2007-12 calls for investments worth $500 billion, but restrictions set by regulators confine the investments of such funds to AAA and AA-rated infrastructure companies and hinder large-scale investments by private insurers, said the survey. Private insurance companies invested only about Rs 1,735 crore while stateowned insurers invested Rs 11,353 crore in infrastructure projects in 2008-09.
"The survey may have suggested more liberalised investment norms for insurance and pension funds," said India Infrastructure Finance Company Ltd (IIFCL) CEO Pradeep Kumar. The infrastructure investment target of 9% of the GDP looks daunting, given that the collapse of global markets and dampening of equity markets hobbled investments in 2008-09.
"The government estimated investments of $500 billion but it never put in place a plan of action," said GMR group president and chief financial officer A Subba Rao, adding that though the overall environment in the road sector, for example, has improved, it took almost a year to see the fruits of policy. The lack of investments, along with a skewed government policy, has impeded the progress of the infrastructure sector, especially highways. The government planned to build 20 km of highways a day, but is struggling to meet even half the target in recent months.
In a bid to accelerate highway development by encouraging private participation in the infrastructure sector, the road transport ministry has effected several changes, including relaxing the bidding norms for developers. For instance, it has raised the threshold of the conflict of interest clause, which earlier restricted competing bidders from having a common shareholding - direct or indirect - of over 5% during various stages of bidding, to 25%. The government has also decided to release viability gap funding, where it provides up to 20% of the project cost as grant, during the construction period itself.
The government formulated work plans that seek to award contracts for 12,000 km of roads till March 2011, again to expedite highway development. Most of these projects would be taken up on private-public partnership (PPP) basis. According to official estimates, nearly 450 projects worth over Rs 2,24,175 crore in road, port, railway and other sectors are currently being implemented under this model. Still, some investors remain dissatisfied with the government measures. "The government continues to offer a legal, financing and technical solution, when the most severe roadblocks are fundamentally institutional in nature," said Principle Indian Infrastructure Fund managing director Shailesh Pathak.
Ref : Team ET
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