The Union government is considering a proposal to subsidise loans for infrastructure projects offered through public bids, by effectively capping interest rates and absorbing the cost of higher rates in its own books.
The proposal was prompted by the reluctance of companies to bid for new projects, especially roads, against the backdrop of volatile interest rates. Borrowing costs are a key factor in the internal rate-of-return calculations for companies looking to bid for infrastructure projects, which typically have a 7:3 debt to equity ratio.
The Planning Commission and finance ministry are considering various options. The plan had yet to take the form of a preliminary discussion. If the proposal was implemented, companies would be reimbursed for the additional payments they incur because of any increase in borrowing costs after the projects are awarded.
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