Monday, June 4, 2007

Govt To Use $5 Billion For Infrastructure Projects

The government has decided to borrow $5 billion from the country''s foreign exchange reserves to fund infrastructure projects. The amount, a little less than 3% of the country''s $204-billion forex reserves held by the Reserve Bank, will be loaned to a new overseas subsidiary of the India Infrastructure Finance Company, a proxy for the government. This company will use the funds to finance capital imports of Indian companies, especially in the infrastructure sector. Part of these funds could also be used to co-finance foreign borrowings for such projects, primarily capital expenditure, in line with a proposal made by finance minister P Chidambaram in this year''s Budget. A government official said the $5-billion borrowing and returns on the funds will be guaranteed by the government. It will also commit to the central bank a return in excess of 3.5% on loans taken from the reserve. The official said the move to borrow from the central bank and use it for infrastructure has been found to be legally tenable.

No comments: