India considers creating bank with INR1tr-equity capital to fund roads

  • India is considering a proposal to create a bank to help fund port, road and power projects as Prime Minister Narendra Modi’s administration aims to lift Asia’s third-largest economy out of the recession.
  • The new entity, likely to be part of the budget announcement in Feb 21, may have an equity capital of INR1tr, people with knowledge of the matter said, asking not to be identified as the matter isn’t public.
  • The existing India Infrastructure Finance Co., which has a INR20bn corpus, will be merged with the bank, they said. Initially, the institution will be funded by the government, which will later invite investors, the people said.
  • It could be on the lines of state-run National Investment and Infrastructure Fund Ltd., which counts the Canada Pension Plan Investment Board, Asian Development Bank and Abu Dhabi Investment Authority among its investors.
  • The finance ministry has prepared a note for Modi’s cabinet to discuss the proposal.
  • India faces the challenge of boosting spending on productive assets that aid economic growth after being forced to direct the bulk of stimulus in 2020 on the poor and the farmers to protect them from a pandemic-induced slowdown.
  • Attracting foreign investment is also crucial to meet Modi’s goal of spending USD1.5tr on new roads, rail links and other infrastructure over the next five years as public finances deteriorate.
  • The government pumped nearly INR1.7tr into public sector banks in the two years to Mar 20. But a widening budget deficit and weak revenue growth put a brake on any further recapitalization plans for FY21.

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