India Is Holding Talks With State Bank for $11 Billion Infrastructure Fund

India is in talks with the nation’s largest bank over an $11 billion fund as Asia’s third-biggest economy seeks to raise finances to build roads, ports and power plants, an aide to the prime minister said.The government is holding discussions with the State Bank of India and “a couple of other players” for a debt fund that would buy bonds sold by infrastructure companies, Montek Singh Ahluwalia, 66, said in an interview in Kuala Lumpur yesterday. The State Bank may act as an anchor investor along with one or two local or foreign funds, he said.

“We should be able to have an infrastructure debt fund announced somewhere in the beginning of next year,” said Ahluwalia, who is the deputy chairman of the nation’s Planning Commission. “It will require certain regulatory relaxations and they are working out what those would be.”

The effort is part of India’s plan to propel economic growth to a sustained average annual rate of 10 percent, from the 8.5 percent pace forecast for this year. Ranked below Ivory Coast for the quality of its public facilities, the nation will need an estimated $1 trillion in infrastructure in the five years to March 2017 to reach such an expansion rate.

Prime Minister Manmohan Singh last week allowed overseas investors to buy $5 billion more bonds with a five-year maturity sold by infrastructure companies, boosting permitted foreign investment in corporate debentures to $20 billion.

Behind China

The world’s second-most populous nation needs to “do more” on improving its infrastructure, Ahluwalia said. The government last year spent 6.5 percent of its gross domestic product on infrastructure, compared with about 11 percent by China, according to an Ernst & Young India report.

The South Asian country is ranked 89 out of 133 nations for its infrastructure, according to the World Economic Forum’s Global Competitiveness Index.India produces about 10 percent less electricity than it needs. Roads, which account for 65 percent of India’s cargo, are plagued by single lanes and irregular surfaces, slowing trucks to an average speed of about 20 kilometers per hour, according to a 2009 study by Transport Corp. of India and the Indian Institute of Management in Kolkata.

The average time taken by ships to unload and load at Indian ports is almost 96 hours, about 10 times longer than in Hong Kong, the government said in its latest annual economic survey.

Inflation Forecast

Turning to inflation, the Oxford University-educated Ahluwalia said it’s likely to slow in coming months. The benchmark wholesale-price inflation rate is likely to be about 6 percent by end-December and a further increase in interest rates will depend on the central bank’s assessment of inflation,“Inflation was a concern, remains a concern but actually is coming down,” he said. “It’s up to the RBI to determine whether the pace at which inflation is coming down meets with what they think the inflation objective should be or not.”

Reserve Bank of India Governor Duvvuri Subbarao on Sept. 16 raised the interest rates for the fifth time since mid-March, boosting the repurchase rate to 6 percent from 5.75 percent, and the reverse repurchase rate by a half point to 5 percent.Inflation moderated to 8.51 percent in August from 9.8 percent the previous month, a government report showed Sept. 14.Ahluwalia said economic growth will pick up to 9 percent in 2011.