The intention behind Finance Minister P Chidambaram's latest statement that the government would set up SPV’s (special purpose vehicles) to borrow forex reserves from RBI to fund infrastructure initiatives is, per se, laudable. It should be seen in the light of the fact that India is sitting over huge forex reserves amounting to around $ 210 billion and that the government intends to use a minimum of $ 7 billion, accounting for 3.33 per cent of total reserves. Mr Montek Singh Ahluwalia may have mooted the idea of using a small portion of India’s forex reserves for infrastructure funding, but it was the Deepak Parekh headed India Panel that elaborated on the idea, albeit with a rider that forex reserves be utilised strictly “without any risk of monetary expansion.”  It remains to be seen as to what kind of shape the proposed SPV – India Infrastructure Financial Company (IIFCL) – will take and how efficacious it will be, when it comes to putting in place the mechanism involving the structuring and execution of projects.
There is scepticism in certain quarters that the proposed IIFCL may go the way of other infrastructure development entities floated by Mr Chidambaram and his predecessors. For instance, Mr Chidambaram created IDFC in 1997 to provide long term loans and guarantees for infrastructure development, when there was already in existence Infrastructure Leasing & Financial Services (IL&FS), set up a decade earlier with a similar mandate. Now, he is coming out with another SPV for the same purpose exactly after another decade. In what way have IL&FS and IDFC contributed to infrastructure development in the country? Both the companies are listed entities with a decent balance sheet, but they have done precious little in terms of set goals.   If anything, the two companies have ended up like other finance companies, who aim only at enhancing the stakeholder value.
Raising funds have never really been a problem with India's lack of infrastructure development but state meddling or bungling sure is.  Parekh’s panel report echoes as much in its own way, when it says that private equities and venture capitalists be allowed to invest in core projects. Financial risk is minimal if the government borrows $ 7 billion from the vast forex reserves for infrastructure projects, provided borrowed money is spent outside the country, thereby not fuelling inflation. Even if this fails to impact, there would be the satisfaction of trying out the idea. Suffice to say, if Chidambaram has the will, there is a way.