India considers creating bank with $13.7 billion equity capital to fund roads

India is considering a proposal to create a bank to help fund port, road and power projects as Prime Minister Narendra Modi’s administration aims to lift Asia’s third-largest economy out of the recession.

The new entity, likely to be part of the budget announcement in February, may have an equity capital of 1 trillion rupees ($13.7 billion), people with knowledge of the matter said, asking not to be identified as the matter isn’t public. The existing India Infrastructure Finance Co., which has a 20 billion rupee corpus, will be merged with the bank, they said.

Initially, the institution will be funded by the government, which will later invite investors, the people said. It could be on the lines of state-run National Investment and Infrastructure Fund Ltd., which counts the Canada Pension Plan Investment Board, Asian Development Bank and Abu Dhabi Investment Authority among its investors.

The finance ministry has prepared a note for Modi’s cabinet to discuss the proposal. The spokesperson at the ministry declined to comment.

India faces the challenge of boosting spending on productive assets that aid economic growth after being forced to direct the bulk of stimulus last year on the poor and the farmers to protect them from a pandemic-induced slowdown. Citigroup Inc. economists wrote last year that spending should be directed on infrastructure, rather than populist measures, to cushion the economy headed for the deepest slump among emerging nations.

Attracting foreign investment is also crucial to meet Modi’s goal of spending $1.5 trillion on new roads, rail links and other infrastructure over the next five years as public finances deteriorate.

The government pumped nearly 1.7 trillion rupees into public sector banks in the two years to March 2020. But a widening budget deficit and weak revenue growth put a brake on any further recapitalization plans for the current financial year.