Ending a hiatus since it was launched more than two years ago, the much-touted National Investment and Infrastructure Fund (NIIF) is close to its first major deal. Abu Dhabi Investment Authority (ADIA) is learnt to have committed to invest in specific sectors, especially in transport. An agreement in this regard is likely to be signed in a few weeks, an official said, adding that these investments, to be staggered over a few years, could be to the tune of $5-10 billion. A deal with Singapore’s sovereign wealth fund, Temasek Holdings, could also be announced soon, another official had said earlier. Industry sources had said Temasek could initially put in about $1 billion.
These apart, Canada-based pension funds — PSP Investments and Ontario Teachers’ Pension Plan — are learnt to have been in discussion with the government to invest Rs 4,000 crore, mainly in road projects. These discussions, however, were yet to be concluded, the sources said. The delay in taking-off of the ambitious NIIF — even two years after its announcement in the 2015-16 Budget — has raised eyebrows in some quarters. The NIIF was set up in December 2015 in a tax-efficient manner as a category-II Alternate Investment Fund, which was eligible for a pass-through status under the Income Tax Act, to attract investors. But despite a flurry of announcements and initial pacts with potential investors — including sovereign wealth funds — no investment has flowed in yet.
However, government officials say the building of a new institution requires meticulous designing, hiring manpower and negotiations with potential investors on various aspects of funding take time, hence the delay. NIIF chief executive Sujoy Bose was appointed in only June last year and the senior management of the Fund, which will act as a catalyst for infrastructure project financing in the country, was also put in place only 7-8 months ago. “The negotiations with potential investors such as on hurdle rate (minimum rate that a company expects to earn when investing) and clauses to exit investments in projects prematurely in exceptional circumstances, take a lot of time,” an official told FE.
Another official said sovereign wealth funds from Western Asia, which has seen an erosion of oil revenues following the plunge in prices since their 2015 highs, are more cautious in making fresh investments than before. “Working out the structure of investment partnerships to the satisfaction of both the sides is another issue, without which investments won’t flow in,” he added. In February 2016, the government had also signed an MoU with the United Arab Emirates to explore opportunities for mobilisation of up to $75 billion long-term investment in the NIIF. Other potential investors in the fund include SWFs such as Qatar Investment Authority (QIA).
In April, during the visit of the British chancellor of the exchequer, India and the UK announced the launch of a Green Growth Equity Fund, to be set up under the NIIF framework, for green infrastructure projects in India. The two countries are to anchor investments up to £120 million each in the joint fund. While work is still on, no investment has flowed in yet following this agreement. Earlier this year, finance minister Arun Jaitley had said the country required investments worth an estimated Rs 43 lakh crore (about $646 billion) in the infrastructure sector over the next five years. As much as 70% of this requirement will be in power, roads and urban infrastructure. Since most public-sector banks are struggling to cope with toxic assets, their ability to fund large infrastructure projects is very limited. So funds for infrastructure from other sources, including NIIF, assume importance.
The NIIF and its sub-funds are supposed to invest in infrastructure projects — greenfield, brownfield and stalled. The NIIF will have an initial corpus of Rs 40,000 crore, of which 49% will be contributed by the government. The remaining 51% is to be raised from sovereign wealth funds, other global long-term investors and public-sector units. The government has already approved its contribution of Rs 20,000 crore towards the NIIF. Of this, however, only Rs 1,000 crore has been budgeted for 2017-18, down from the BE of Rs 4,000 crore for the last fiscal. The reduction in budgetary allocation for 2017-18 was mainly in the light of the trend last fiscal. Since the NIIF couldn’t attract any foreign or domestic fund or company last fiscal, the government wasn’t required to contribute anything either. So it disbursed only Rs 15 crore to the NIIF last fiscal to just take care of its administrative expenses. However, since sovereign wealth funds are now likely to invest, the government, too, has to raise its budgetary support for the NIIF for the current fiscal from its committed corpus.