Mumbai: The stock markets got a fresh boost with the finance ministry notifying guidelines for financial support to states and central ministries under the public-private partnership model and a proposal to hike stock investment limit for provident funds and other retirement funds from five per cent to 10 per cent.
The Bombay Stock Exchange (BSE) benchmark Sensex ended more than 170 points up at 19,966 points, despite the government''''s caution that increased capital inflows could hurt the economic growth.
The broader S&P CNX NIFTY of the National Stock Exchange scaled a new intra-day peak of 6,042.10 and also ended at a new high of 5,974.30 from previous close of 5,954.70.
The BSE Sensex after breaching the 20,000-level again at the outset, fell sharply and was down 89 points at 19,706.43 around mid-session after the government said that heavy capital inflows could endanger growth and price stability. It later recovered and ended at 19,966.00, showing a net rise of 170.13 points or 0.86 per cent, over yesterday''''s close of 19,795.87.
The mid-year economic review 2007-08 tabled in parliament by finance minister P Chidambaram has cautioned that increased inflows can impact macroeconomic aggregates through the exchange rate, trade and monetary variables.
The Reserve Bank has been trying to siphon off the excess inflows through increase in banks'''' cash reserve ratio and intervention in exchange market but the rupee appreciated by more than 15 per cent in the year to October 2007.
The finance ministry notified guidelines for financial support to states and central ministries for preparing project reports under the public-private partnership model.
The government estimates that India would require $500 billion investments to prop up infrastructure in the next five years.
Chidambaram, in his last budget speech had announced the setting up of a revolving fund with a corpus Rs100 crore to accelerate the PPP projects through India Infrastructure Project Development Fund Scheme (IIPDF).
"IIPDF will be available to the sponsoring authorities for PPP projects for the purpose of meeting the project development costs, including expenses incurred by the sponsoring authority in respect of feasibility studies, environment impact studies, financial structuring, legal reviews and development of project documentation, including concession agreement and commercial assessment studies grading of projects," a finance ministry statement said.
Under the proposed scheme, the sponsoring authority, which can be a central or state government agency, will have to set up a PPP cell to undertake project development activities and decide larger policy and regulatory issues to enlarge the number of projects on its shelf.
Finance ministry will provide a grant under IIPDF, which will be up to 75 per cent of the project development expenses. On successful completion of the bidding process, the project development expenditure would be recovered from the successful bidder, the statement said.
In case of failure of bid, the assistance would be recovered and the sponsoring authority would be liable to refund the amount of assistance received. The balance 25 per cent will be co-funded by sponsoring authority, it added.
The finance ministry said it is also is considering doubling the ceiling of retirement funds managed by private organisations for investing in listed companies to 10 per cent. A final decision on this is likely next week.
Finance ministry has proposed that provident funds operated by firms could be allowed to invest their funds in shares of companies that have an investment grade debt rating from at least one credit rating agency or companies listed on BSE Sensex or NSE NIFTY 50, besides in equity linked schemes of mutual funds regulated by SEBI.
"We had invited public comments on the proposed investment pattern for non-government provident funds, and would take a decision in this regard next week after studying the comments," a senior finance ministry official said.
If these guidelines are followed by private provident funds that have an aggregate investible amount of nearly Rs300,000 crore.