Rs 20k-cr NIIF, foreign investment in AIFs to boost infrastructure

Sources say mandate of the NIIF will include investment in commercially viable and stalled projects

The Cabinet, chaired by Prime Minister Narendra Modi, on Wednesday gave its nod for setting up of the proposed Rs 20,000-crore National Investment and Infrastructure Fund (NIIF).

First announced by Finance Minister Arun Jaitley in his 2015-16 Budget speech, the corpus of NIIF will be used to raise debt and, in turn, be invested as equity in infrastructure finance companies such as Indian Railway Finance Corporation and National Housing Bank.

Sources said the mandate of the NIIF would include investment in commercially viable and stalled projects. It would also consider ‘nationally important projects’, especially in the manufacturing sector, if commercially viable.

Government contribution would not exceed 49 per cent of the subscribed capital of NIIF, so that it can be seen as a sovereign fund and take independent decisions on its planned investments. This would be different from what Jaitley said in the Budget, that not more than Rs 5,000 crore would be given to NIIF each year. It will be established as a Trust and headed by a board or a governing council, which will have representatives from the government, infrastructure & financing professionals, and economists. Sources said the terms and period of appointments of the governing council would be decided at a later date.

As reported in Business Standard earlier, apart from the Centre, cash-rich state-owned companies will be expected to contribute to the NIIF’s Rs 20,000-crore corpus through special dividends.  Similarly, domestic pension and provident funds and the National Small Savings Fund might also provide funds to the NIIF. It might also utilise the proceeds of monetised land and other assets of public sector undertakings for infrastructure investment. The NIIF is expected to form a vital part of the government’s stated plans to increase public spending in infrastructure.

The Cabinet also gave its approval to foreign investment in the alternative investment funds (AIF). Foreign investment will now be permitted in AIFs, which are set up as registered trust, incorporated company or limited liability partnership.

The changes related to this approval are expected in the foreign direct investment policy, the Foreign Exchange Management Act, and the relevant Securities and Exchange Board of India guidelines (Sebi).

Sources said that a benefit of Wednesday’s Cabinet decision on AIFs would be increase in funding for start-ups, early-stage ventures, and small and medium enterprises. It would also enable additional funding for sectors such as infrastructure and manufacturing.

They added it could reduce the pressure on the banking system, burdened by stressed assets from funding infrastructure projects.