Power ministry mulls Rs50,000 crore fund for projects

New Delhi: The power ministry is considering setting up of a Rs50,000 crore fund for financing projects and may rope in state-run lenders Power Finance Corporation Ltd (PFC) and Rural Electrification Corporation Ltd (REC) for the same, reports PTI.

"The concept is being thought about to create a debt fund. It is shaping up. The corpus would be about Rs50,000 crore," a top power ministry official said.

The proposal for setting up the debt fund is at a nascent stage and the ministry is yet to work out the final modalities. It is also in constant dialogue with the Planning Commission for working out a blueprint of the proposed fund.

"We are looking at where the money could be raised from, which project would be there ... we are in talks with the Planning Commission for the debt fund," the official said, without revealing the Plan panel's view on the subject.

On being asked about the role of Power Finance Corporation and Rural Electrification Corporation, he said they could get associated with it.

The proposed fund is expected to finance the various power generation, transmission and distribution projects and also refinance those projects i.e. providing funds to the smaller lending institutions or the companies for funding the projects.

India, in the 12th Five-Year Plan (2012-17), targets to add over 1,00,000 MW of power generation capacity, which require an estimated investment of Rs4 lakh crore.

An expenditure of about Rs4 crore is incurred on generating one megawatt of electricity.


Pranab seeks opposition, states’ help for rolling out GST

New Delhi: The Centre today sought cooperation of the opposition in Parliament and states for introduction of Goods and Services Tax (GST) from next fiscal, saying the move would help control fluctuation in prices of items including petrol, reports PTI.

"The bill (for constitutional amendment) has to be introduced in this session, has to be examined by the standing committee, it has to be ratified by 15 states.

Otherwise, there will be another delay... I seek cooperation of the entire House," finance minister Pranab Mukherjee said while replying to the discussion on a motion on inflationary pressure on the economy in Lok Sabha.

He said the empowered committee of state finance ministers (FMs) are meeting on GST today.

"The empowered committee of state FMs, they are meeting... if we can do that not only petroleum products, but also the entire range of products that can be covered will be under (the new tax) mechanism and it will be a win-win game," he said.

He added that the levies on petroleum products account for 34% of states' revenues.

"Petroleum sector is an important revenue yielding measure, 34% of the states' revenues comes from petroleum products. In 2009-10, Rs 72,000 crore was raised by states. I know petroleum prices should be rationalised, but how can we do it?" he said, suggesting that GST would help bring down volatility in prices of petrol in domestic markets.

Mr Mukherjee also sought the opposition's cooperation for including even petrol in GST.

However, the discussion so far on GST between the Centre and states has excluded petroleum products from the purview of new indirect tax regime.

State finance ministers are meeting here today to discuss the Centre's proposal of a 3-rate structure for roll out of GST from 1 April, 2011, which would subsume various indirect taxes.

They will also discuss the constitutional amendments required to roll out this new indirect tax regime, which will replace the excise duty and service tax at the central level and value-added tax at the state level, besides the cess, surcharges and local taxes.

He asked for collective effort of the opposition to help him bring the constitutional amendments, reminding that the BJP in its own manifesto in the last Lok Sabha elections had promised to roll out GST.

"If we can do it (introduce GST) then the entire spectrum of services tax, excise and value added tax (VAT) will be brought under the constitutional mechanism. We shall have to do it collectively."

Last month, finance minister Pranab Mukherjee proposed a three-rate structure for GST-20% for goods, 12% for essential goods and 16% for services.

States and the Centre are proposed to equally tax the common base of goods and services.


Takeout financing: Will foreign banks gain more than their Indian counterparts?

In yet another attempt to ensure more funding  for infrastructure, the RBI last month opened up the sector to the ‘takeout financing’ scheme. However, a few industry sources believe this move will help foreign lenders more

The Reserve Bank of India (RBI) has issued banking guidelines for 'takeout financing' in the infrastructure sector. While the step has been taken to ensure easy infrastructure funding, it will depend on how much domestic banks will show interest in this scheme. According to bankers, the model will be more beneficial for foreign banks.

Last month, the RBI reviewed its External Commercial Borrowings (ECB) policy and put in place a scheme for takeout finance. Accordingly, it decided to permit takeout financing arrangement through ECB, under the approval route, for refinancing of rupee loans availed from domestic banks by eligible borrowers in the seaport & airport, roads (including bridges) and power sectors for the development of new projects.

Under the new process, the corporate developing the infrastructure project should have a tripartite agreement with domestic banks and overseas recognised lenders for either a conditional or unconditional takeout of the loan within three years of the scheduled Commercial Operation Date (COD).

"I am not even sure whether the model will take off at all. The model proposed will not benefit domestic banks or borrowers. It will help only foreign banks in this process," said an investment banker, who did not wish to be named. A number of sources from domestic banks echoed the same view.

"It is not a bad idea in theory. However, in practice, I doubt whether many banks would want to offer this route. They are right in a way to say that the model would prove more beneficial to foreign lenders or banks," said Clyton Fernandes, senior analyst, Anand Rathi Securities.

However, this move might also help domestic lenders. "It will help them (local banks) manage their asset-liability mismatch in a better way. By selling these loans, they can also earn a certain fee," said Mr Fernandes.

On the other hand, credit growth and loan-book growth numbers are likely to be lower if banks opt for takeout financing. "Certain investors are looking at a headline growth number (maybe 20% or 25%), so such investors may be a little disappointed. Thus the growth number would be impacted, but on the other hand, it would be good because right now a number of banks have a number of instances of mismatches in assets and liabilities," said the analyst.

Therefore, going forward, are domestic banks expected to go for takeout financing aggressively? The future and success of this scheme will depend on the credit demand across sectors.

"In a way, if economic growth is strong and credit demand is more broad-based, I think that domestic banks would not be much worried. If all the demand is coming from infrastructure, I don't think banks would want to take these loans off their books. If credit growth is going to be more broad-based, they may go for takeout financing," added Mr Fernandes.

"For any new scheme or regulation, if the banks are not happy, they do approach us. However, we have not heard anything from domestic banks on takeout financing. Thus, they should have no issues with it," said an Indian Banks' Association (IBA) official, who preferred anonymity.


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