Tax-free infra bonds
Tax-free infra bonds may earn lower returns
- The government has decided to clamp down on excessively
high interest rates and commissions paid by entities such as National
Highways Authority of India (NHAI) that are in line to issue tax-free
bonds of nearly Rs 60,000 crore during the current fiscal.
- Sources
said that the finance ministry will soon finalize norms to ensure that
the exchequer, which will lose resources through the tax sops, is not
burdened with a higher bill. The move follows the issue being raked up
by Gajendra Haldea, advisor to Montek Singh Ahluwalia, deputy chairman of Planning Commission.
In January, soon after the NHAI issue, he had written to the road
transport department saying that the brokerage of the order was Rs 110
crore when the government was paying as low as 0.15% for disinvestment.
- Following
this, the finance ministry initiated an enquiry, which may now extend
to NHAI, and came to the conclusion that the road construction agency
ended up paying higher interest rate and even the timing of the issue
was something that was looked at. When tax-free bonds were issued by
other agencies such as Hudco and REC during the last fiscal, some of the
deficiencies found in the NHAI bond programme were sought to be
rectified. For instance, lower commission was something that the finance
ministry insisted upon.
- An
NHAI official said that the finance ministry had raised certain queries
on the Rs 10,000-crore bonds issue and the agency has said that all
norms were followed. “If the government thinks that the norms should be
tightened , we are all for it,” the official said.
- Now,
North Block wants to strengthen the process through a fresh set of
guidelines. While interest rates are already decreasing , high networth
individuals (HNIs) and institutional investors, who invested in the
bonds, may be in for a further reduction interest rates, sources
indicated. At present, the interest rate on bonds cannot be less than 50
basis points
lower than the yield on a government security of the same maturity
during the last day of the preceding month. This clause may be diluted
this year, although the new formula is yet to be decided.
- Besides,
officials said that the commission paid to institutional buyer may be
cut as there was no point paying bank commission on its own investment.
- Source: Economic Times
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