Govt set to overhaul investment fund

Disinvestment money to be used for bank recapitalisation and subscribing to CPSE shares, Cabinet slated to take up the proposal today

The government is set to overhaul the National Investment Fund (NIF) from April 1. From the next financial year (FY14), the government will utilise the disinvestment proceeds for recapitalisation of banks and subscribing to the shares of Central Public Sector Enterprises (CPSEs) and preferential allotments.

The Cabinet is slated to take up the finance ministry’s proposal on NIF restructuring tomorrow, which also proposes to end the four-year moratorium on putting the stake sale money into the fund.

Officials in the know said that according to the proposal, all disinvestment proceeds will be transferred to NIF and will remain there till they are withdrawn.

The fund will be used to subscribe shares issued by CPSEs, including public sector banks and public sector insurance companies, on rights basis so as to ensure the overall government holding does not fall below 51 per cent.

According to officials, the fund will also be used for preferential allotment of shares, including fresh equity, and recapitalisation of public sector banks and insurance companies.

The NIF will be operated through an empowered group of ministers (eGoM) headed by the finance minister and it will work on the advice of an inter-ministerial group (IMG) working under the chairmanship of disinvestment secretary. The existing fund managers of NIF will also be removed, according to the proposal.

Officials said that the idea was that money coming from disinvestment should be utilised for creating capital assets.

In 2009 the government had decided to put a ‘pause’ on putting disinvestment money in NIF. Since then, all the proceeds have been used for funding six social sector schemes -- Mahatma Gandhi National Rural Employment Guarantee Scheme, Indira Awas Yojana, Rajiv Gandhi Grameen Vidyutikaran Yojana, Jawaharlal Nehru National Urban Renewal Mission, Accelerated Irrigation Benefit Programme and Accelerated Power Development Reform Programme.

According to the original plan, 75 per cent of the income from the fund was to be spent to finance select social sector schemes in education, health and employment, and 25 per cent to meet the capital investment requirements of profitable and revivable PSEs.

As on August 31, 2012, the NIF corpus was Rs 1,814. 45 crore. The fund is managed by three public sector mutual funds – SBI, LIC and UTI mutual funds.

The decision to change the utilisation pattern of NIF money was taken on November 5, 2009, in view of the difficult economic situation caused by the global slowdown and severe drought. It was decided to grant one-time exemption for utilisation of all proceeds from disinvestment of CPSEs deposited in the NIF over a period of three years -- April 2009 to March 2012 – to be made available in full for investment in specific social sector schemes decided by the Planning Commission and the Department of Expenditure. Consequently, the disinvestment proceeds during this period, about Rs 59,000 crore, were made available for capital expenditure in the six identified social sector schemes.

The pause was subsequently extended for one more year up to March 2013 due to the continuing difficult economic conditions.