Plans

The long-pending demand for allowing insurance and pension funds to invest in long-term infrastructure funds is expected to be fulfilled soon. This will benefit the power sector most.

The Department of Economic Affairs (DEA) has written to the Department of Financial Services (DFS) in this regard. The letter dated September 17 states, “DFS needs to take up (allowing insurance and pension funds) with IRDA and PFRDA.”

IRDA is the insurance regulator, while PFRDA regulates the pension market.

Sources told Business Line that this matter came up for discussion during a review meeting recently called to review the implementation and action plan on suggestions given by top industrialists during their meeting with the Finance Minister on August 1. They had demanded that the insurance and pension funds need to be allowed to invest in long-term infrastructure funds.

It was said that the power sector should be given priority and that long-term funds of 30-35 years duration for infrastructure development should be created.

According to the sources, IRDA has some reservations on allowing insurance companies to invest in the long-term funds. But now, the effort will be to remove such doubts so that the regulator could issue the guidelines soon.

IRDA is also considering raising the investment limit from 10 per cent to 20 per cent in bonds, provided it is exchange traded. Experts feel that such a move will also help in long-term infrastructure financing.

The largest life insurance company in the country Life Insurance Corporation of India (LIC) alone is expected to invest Rs 1,80,000 crore in equity and debts during 2011-12.

The development of long-term infrastructure debt fund is crucial for meeting the targets of the 12th Plan which is seeking a trillion-dollar investment in the infrastructure sector. Half of that is estimated to come from the private sector and the rest from the Government or Government agencies.

It may be recalled that the Deepak Parekh Committee on Infrastructure Financing, in 2007, recommended insurance and pension funds to be allowed to invest in long-term infrastructure funds.