Government planning to use LIC money to fund Infrastructure projects
The ministry of road transport and Highways has asked the government to increase the budgetary allocation, as a host of projects are facing cost overruns.
NEW DELHI: After using Life Insurance Corporation (LIC) for the bailout of the IDBI Bank, the government is planning to use LIC for funding of some of the infrastructure projects, including power and highway projects as the expenditure on these infrastructure projects are expected to be higher than anticipated.
According to a highly placed source in the finance ministry, the ministry of road transport and Highways has asked the government to increase the budgetary allocation, as a host of projects are facing cost overruns. As most of the projects are flagged as an important one, the finance ministry is considering using LIC to invest in some of the projects.
“The ministry is not in agreement to increase the budgetary outlay as it wants to stick to the fiscal targets. However, there is no dearth of funds. The ministry is considering LIC extending loan to some of the key projects on a priority basis. It may in form of loan extended to the project for a period of 5 years,” a senior official from Finance Ministry told TNIE.
The official further added that tentatively the rate of interest is proposed between 8-8.5 per cent, which is subject to final approval.
According to a recent report ‘Status of Infrastructure Projects’ by CARE Ratings, of 1304 infrastructure projects, the original cost of implementation has gone up from Rs 16.2 lakh crore to Rs 18.38 lakh crore, a cost overrun of Rs 2.2 lakh crore. By the government’s own admission in parliament, there are currently 343 infrastructure projects facing cost overruns.
Given the election year, the government is already struggling to deliver projects on time, funding is emerging as a major challenge.
Similarly, funding option is also for the key power projects which are stalled because of the revised guideline by RBI on loan restructuring. The official added that similar process can be followed for these projects, where they can borrow from the LIC.
“That was one of the suggestions that came for the stressed power loans. However the proposal is subject to approval from the cabinet,” the official added.
Recently LIC came to the rescue of the debt-trapped IDBI bank, by proposing to increase its stake in IDBI Bank to 51 per cent, which is estimated to cost the Insurance major whopping Rs.18-20,000 crore, as per market estimates. However, the move has already attracted criticism from experts who feel that it will impact the financial health of LIC and the money of policyholders may be impacted.