Even as India is “aggressively” trying to attract funds for the Rs 40,000-crore National Investment and Infrastructure Fund (NIIF), global investors are likely to adopt a “cautious” approach over investing in it, a report by BMI Research has said.
The company, part of the Fitch Group, said infrastructure sector in the country continues to face challenges, which is discouraging international investments.
“Indian government is aggressively trying to attract foreign investments into its infrastructure sector, seeking $1 trillion in investments, however, we expect that international investors will continue to remain cautious over investing in the fund which seeks to fill the funding gap in India,” the company said in its latest report.
Till date, the NIIF has secured support through Memorandum of Understandings (MoUs) with sovereign wealth funds including Russia’s Rusnano, Abu Dhabi Investment Authority and Qatar Investment Authority, it added.
However, BMI Research said, “While encouraging that there is interest in the fund, there is yet to be any formal commitment of capital.”
Government created the NIIF in December last as an investment vehicle for funding commercially viable greenfield, brownfield and stalled projects. While the government will invest Rs 20,000 crore in NIIF, the remaining amount will come from private investors.
BMI Research further said, “The potential of India’s $6 billion NIIF will not be fulfilled in the short-term, even as projects are selected for investment.
“Crucially, the Indian infrastructure sector continues to present various challenges hindering the attraction of the market for international investors.”
On the reasons behind the lack of interest from global investors in investing in NIIF, it said that it is likely on account of India’s investment outlook, which remains challenging.
“The country scores below regional average in both our Operational and Project Risk Index, with particularly low score for Crime and Security Risk and Construction Risk, highlighted by the fact that a third of projects — worth a combined value of $210 billion — are delayed,” it said.
However, BMI Research expects India’s construction and infrastructure sectors to grow by an annual average of 6.4 per cent between 2016 and 2025.
“While we expect the NIIF to continue to fund projects itself, we believe international backers which the fund is looking to tap are likely to adopt a wait-and-see attitude before investing in the fund, largely owing to a still challenging operational environment and high project risks which threaten timely returns on investment,” it said.