The National Investment Fund will be solely used for capital investments from this year and the railways and public sector banks would get R24,000 crore and R12,000 crore respectively from this dedicated fund, according to government sources.

The disinvestment proceeds ? R55,814 crore budgeted for 2013-14 ? is the source of NIF.

Between 2009-10 to 2012-13, the disinvestment proceeds, which were to be used entirely for social-sector spending, did not go the NIF, instead the money went to the Consolidated Fund of India.

A senior government official told FE that funds to railways for infrastructure expansion projects will be provided as budgetary support out of the NIF account. For 2013-14, government has budgeted R26,000 crore to railways as gross budgetary support.

The official added that out of the budgetary allocation of R14,000 crore earmarked for recapitalisation of public sector banks, NIF will be providing roughly R12,000 crore.

In January last year, the Cabinet authorised NIF to buy shares of public sector enterprises, including banks and insurance companies.

The move is meant to enable the government to utilise the disinvestment proceeds for capital investment needs rather than as a source to meet the expenditure requirements. The government said with effect from FY14, the disinvestment proceeds will be credited to the public account under the head NIF, and they would remain there until withdrawn or invested for the approved purposes.

A committee headed by secretary, disinvestment department, will take a final call on the utilisation of NIF proceeds. The department is currently deliberating on capital investment needs of public sector unit, banks, insurance companies and railways. The government has budgeted R55,814 crore as the disinvestment target for the current year against Rs 23,920 crore it managed to raise in 2012-13.

NIF currently has a small corpus of Rs 1,814 crore from the proceeds of stake sale in Power Grid Corporation and Rural Electrification Corporation.

As per the Cabinet note, the fund will be used to subscribe to shares issued of public sector banks and public sector insurance companies, on rights basis or preferential allotment of shares so as to ensure the overall government holding does not fall below 51%.

The funds managers namely UTI Asset Management Company, SBI Funds Management Company and LIC Mutual Fund Asset Management Company managing NIF will stand discharged of their responsibility. NIF was set up in 2005 where as much as 75% of the income from NIF is used to finance selected social sector schemes, while the rest is utilised to meet the capital investment requirements of profitable and revivable central PSU.

However, in 2009, the government decided to put a moratorium on putting disinvestment money in NIF.

Since then, all the proceeds have been used for funding six social sector schemes.