Why national infra fund may derail India

The aim of financing commercially viable projects should be tweaked to include non-commerical projects

GN Bureau | August 1, 2015


#infrastructure   #equity   #investment   #jayant sinha  

The union cabinet has given green signal and the ₹20,000-crore National Investment and Infrastructure Fund (NIIF) will take shape by this year end.

The NIIF, which may take the role of a sovereign wealth fund, is being set up primarily to address the gap in equity financing of large-gestation and commercially viable infrastructure projects in the country. This is where the catch lies. India needs large number of infrastructure projects in transport and power sector. The infra sector calls for huge investment and the NIIF could provide that funding. However, the catch lies in the aim of the NIIF.

It says the fund will be made available to commercially viable projects. This is because of the nature of equity holders. However, every infrastructure project cannot guarantee return on the investment or commercially viable. Many infrastructure projects are for the society and should be taken up despite them not making good business sense.

The government should look beyond commercial angle and build roads, bridges and dams.

According to the details given by minister of state for finance Jayant Sinha to media, the NIIF is likely to be set up as a trust in which the government will contribute 49 per. The rest of the funds will be pumped in by long-term institutional investors, pension funds and sovereign wealth funds. There could also be an intermediate company looking at day-to-day operations.

Equity funds in entities such as IIFCL, NHB and IRFC, the NIIF could also sponsor funds for investment in infrastructure projects.

The NIIF will be ‘operational’ by the end of this calendar year, Sinha said.

“The government will have an arm’s length relationship with this entity. This will not be a government entity. The NIIF will be an investment manager and put in equity in commercially viable infrastructure projects. It will not be a project management firm,” Sinha said.

Below the NIIF will be a series of alternative investment funds (AIFs), which will provide equity capital support to commercially viable infrastructure projects. Sinha said that foreign investments could be attracted both at the level of NIIF and AIFs. The cabinet had approved the flow of foreign investments into AIFs a few days ago.

Sinha highlighted the lack of equity capital to support the country’s infrastructure development. He pointed out that the balance sheets of large business groups are already stretched and they are not being able to take up fresh exposure due to the absence of equity capital.

The proposed NIIF entity will be located in Mumbai and it will be run by a governance council with “world class governance standards”, Sinha said.

The NIIF is a good concept but the government should also keep the needs of society on its agenda.

Comments

 

Other News

How to leverage AI to solve urgent global issues

The world seems to be hurling towards World War III in all the possible scenarios: hot war, cold war, and proxy war. The battleground seems to have expanded beyond physical to digital or virtual/mixed reality with technology like drones. Moreover, the line between civilian and military targets seems to hav

Budget: Progress towards SDGs and areas for improvement

The Union Budget 2025-26 outlines India`s vision for economic and social growth while also reflecting the country`s commitment to sustainable development. As India moves closer to the 2030 deadline for the United Nations’ Sustainable Development Goals (SDGs), this budget presents a balanced approach

Repo rate cut by 25 basis points to 6.25%

The Reserve Bank of India has, for the first time in five years, reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25% with immediate effect. Consequently, the standing deposit facility (SDF) rate will stand adjusted to 6.00% and the marginal

Amitav Ghosh’s new work: Connections between the word and the world

Wild Fictions: Essays By Amitav Ghosh HarperCollins, 496 pages, Rs 799.00 Amitav Ghosh, one of a handful of Ind

How markets can help (and also hinder) fight against pollution

In the annals of environmental policy, few ideas have been as transformative as the Emissions Trading System (ETS). Born from the minds of economists in the late 1960s, this market-based approach to pollution control has evolved from a theoretical concept to a global tool in the fight against climate chang

Will Bihar complement the resolution of Viksit Bharat 2047?

As India completes its diamond jubilee as a republic, I am reminded of a statement by Dr. A.P.J. Abdul Kalam, delivered during an address to the Bihar Chamber of Commerce in Patna on March 28, 2006. He said, “I have visited Bihar numerous times, and it has always been a source of happiness for me to

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now



Archives

Current Issue

Opinion

Facebook Twitter Google Plus Linkedin Subscribe Newsletter

Twitter