Chidambaram: On a cash hunt

Mumbai, June 6: The United Progressive Alliance government plans to replicate the National Highway Authority of India (NHAI) experiment in raising funds for key projects in medicare, hotels, tourism and ports.

The cash reserves of public sector undertakings (PSUs) will be used and foreign direct investment (FDI) will also be encouraged to fund infrastructure projects, finance minister P. Chidambaram said in a recent interaction with market players.

The big question in the minds of market intermediaries is on the mode of funding projects, especially when the government is planning to shun the divestment route in raising resources.

According to the finance minister, a key avenue is to leverage public money to raise private funds. The NHAI experiment will be extended to the hospitality sector, hotels and tourism, medical care and ports among others, Chidambaram said.

“Remove the delusion from your minds that we will divert funds to non-productive use at all,” he said.

The government is also open to selling stakes in the Navratnas — the large profit-making PSUs. According to brokers, who interacted with the finance minister, the government has no plans to reduce dividend payout from these companies.

PSUs will be encouraged to raise resources from the capital market. High-quality paper from several PSUs, including banks, is expected to hit the market in the next few months.

The government will decide on selling loss-making PSUs and privatising profit-making PSUs which are not operating in an open competitive environment.

The NHAI was constituted by an act of Parliament. The authority, operationalised in February 1995, is responsible for the development, maintenance and management of national highways entrusted to it.

The NHAI has used innovative means to fund its ambitious projects. Tax saving instruments called infrastructure bonds under section 88 of the Income tax Act and capital gains bonds under section 54 EC of the same act were used to raise funds.

The NHAI bonds floated in the markets have a tenure of seven years with a lock-in period of three years.

NHAI is the nodal agency in the Golden Quadrilateral project. Analysts say if the government adopts a similar stance in building and modernising infrastructure in ports, airports, medical care, hotels and tourism sectors, the multiplier effects will be felt in the entire economy.