Despite PM Narendra Modi’s push, mega UAE-India infrastructure fund plan at risk

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New Delhi | Updated: January 27, 2017 4:51 AM

Even as infrastructure investments by the private sector is in the doldrums and the government’s ability to invest in the sector is constrained, New Delhi runs the risk of delaying, if not partly losing, the mammoth capital support promised by the United Arab Emirates (UAE).

The idea was to set up a UAE-India Infrastructure Investment Fund, with the aim of reaching a target of $75 billion over 10 years to support investments in India’s next-generation infrastructure. (Reuters)The idea was to set up a UAE-India Infrastructure Investment Fund, with the aim of reaching a target of $75 billion over 10 years to support investments in India’s next-generation infrastructure. (Reuters)

Even as infrastructure investments by the private sector is in the doldrums and the government’s ability to invest in the sector is constrained, New Delhi runs the risk of delaying, if not partly losing, the mammoth capital support promised by the United Arab Emirates (UAE). The reason: The government’s failure to put in place a mutually acceptable institutional structure for mobilising the funds.

As per the original plan, the investment and governance structure was to be finalised many months ago and ratified during Crown Prince of Abu Dhabi Sheikh Mohammed Bin Zayed Al Nahyan’s ongoing state visit to India. However, that was not to be, though as many as 14 bilateral agreements were signed between the two countries on Wednesday. And the UAE side indicated that the bloc is not to be faulted for the situation.

The government’s lassitude is despite the fact that the relevant bilateral memorandum of understanding was signed in August 2015 when Prime Minister Narendra Modi visited the emirates and the Union Cabinet gave ex facto approval for the same in March last year.

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The idea was to set up a UAE-India Infrastructure Investment Fund, with the aim of reaching a target of $75 billion over 10 years to support investments in India’s next-generation infrastructure, especially in railways, ports, roads, airports, industrial corridors and parks. The proposed National Investment and Infrastructure Fund (NIIF) was to provide the institutional support. NIIF, envisaged to be set up with an initial corpus of Rs 40,000 crore, including half that from the Indian government which will remain a minority partner, is expected to catalyse financing of infrastructure projects, by leveraging the same multiple times.

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UAE ambassador Ahmed Al-Banna reportedly said that the “ball was in India’s court” to get the governance structure for the fund in place. According to analysts, the failure to get the find up and running raises serious concerns. “Though India’s infrastructure is not solely dependent on such funds and projects will not be affected much, the missed opportunity as to why something which had been discussed for so long does not gets signed is worrying,” said Vishwas Udgirkar, partner and lead, infrastructure consulting, Deloitte Touche Tohmatsu India.

In June last year, finance minister Arun Jaitley, while attending the board of governors of Asia Infrastructure Investment Bank in China, had said that India needs to raise over $1.5 trillion in the next 10 years to bridge the investment gap.

He had said that the country has been able to sustain growth at a time of a global slowdown due to the strength of infrastructure creation, which has huge gaps. It may be noted that the government’s share of investment in NIIF — R20,000 crore — is yet to be allocated even though the idea came up about two years ago.

As a fund of funds, NIIF is supposed to make the required finances available to commercially viable projects, including stalled ones. By leveraging the equity, NIIF could raise debt up to 10 times, or R4 lakh crore, over a period of time to ensure long-term fund flows to the infrastructure sector at reasonable cost, the government had said.

The NIIF chief was appointed in September 2016. It might be lacking the wherewithal to execute deals with UAE’s sovereign wealth fund, the $770-billion Abu Dhabi Investment Authority (ADIA), analysts feel.

Apart from ADIA, Singapore’s Temasek and Russian Direct Investment Fund too were seen to be interested in participating in NIIF.

This fund is being set up in a tax-efficient manner as a category II alternate investment fund, which will be eligible for a pass-through status under the Income Tax Act to attract investors.

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