The Union Cabinet on Wednesday approved creation of a Rs 20,000-crore National Investment and Infrastructure Fund (NIIF), a sort of sovereign fund, for development of infrastructure projects, including the stalled ones.
The decision to set up the fund was taken at the meeting of the Cabinet headed by Prime Minister Narendra Modi, sources said. The NIIF, sources said, is being established with an aim to maximise economic impact mainly through infrastructure development in commercially viable projects, both green field and brown field, including stalled projects.
The fund could also consider funding nationally important projects in the manufacturing sector. The initial authorised capital of NIIF would be Rs 20,000 crore, which will be raised from time to as decided by the Finance Minister. The government would contribute 49 per cent of the subscribed capital of NIIF. The Fund would also solicit equity participation from strategic anchor partners. The contribution of the government to the NIIF would enable it to be seen virtually as a sovereign fund and is expected to attract overseas sovereign/quasi sovereign/ multi-lateral/bilateral investors to co-invest in it, sources said.
The Fund was proposed by Finance Minister Arun Jaitley in his Budget 2015-16. Sources further said domestic pension and provident funds and national small saving fund may also provide funds to NIIF. NIIF may utilise the proceeds of the monetised land and other assets of Public Sector Undertakings (PSUs) for infrastructure developments.
The NIIF would be set up within two months from the date of Cabinet approval, sources said. It will be set up as a Trust/other legal entity from both the taxation and flexibility point of view. Money from the fund would be routed to provide equity support to those NBFCs and financial institutions that are engaged in infrastructure financing across sectors, and corpus to JAMCs and equity/debt to commercially viable infrastructure and other projects.
Sources further said government's funds, each year, to NIIF for executing its functions based on its annual plan would be provided as required. This, they said, would help in ensuring that government holding does not exceed 49 per cent while simultaneously providing flexibility to leverage such funds. This would also not make it obligatory for the other partners to infuse similar funds to maintain their equity holdings cash-rich Central Public Sector Enterprises could contribute to the Fund which would be over and above the government's 49 per cent.
NIIF may gauge the commercial viability of infrastructure projects by using market-based selection criteria and checking for the robustness of project appraisals. While investments would mainly be in the core infrastructure sector, the fund would work out the priorities in consultation with the government. The action is intended to promote investment into the economy and enable funds to be committed and released towards identified projects, mainly commercially viable greenfield and brown field infrastructure projects, including stalled projects, sources said.
A report of government's high level committee on financing infrastructure (2014) had noted that fresh inflows of equity in the infrastructure sectors have slowed down significantly over the past few years, constraining several domestic players from making further investment. The report had also recommended that a larger portion of insurance and pension funds may be channelised to finance infrastructure projects and to strengthen financing to the sector.
In NIIF, there will be a governing council which will have government representatives and experts, eminent economists and infrastructure professionals.
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