The Union cabinet has given the nod for an equity infusion worth Rs. 6000 crores into the National Investment and Infrastructure Fund (NIIF) Debt Platform. This green light is one of twelve key measures announced by the Union Finance Minister to stimulate the Indian economy under ‘Atmanirbhar Bharat’ initiative.
Background
According to the National Infrastructure Pipeline (NIP), the infrastructure sector is set to receive a targeted investment of Rs. 111 lakh crore over the next five years, divided among different sub-sectors. This substantial investment necessitates a debt financing requirement of at least Rs. 60 to 70 lakh crores. At this juncture, the requirement is for specialized infrastructure-focused financial institutions like the NIIF Debt Platform, which is under development by the NIIF. This institution would lend at all stages of project life cycles, backed by a robust capital base and expertise-driven approach.
Equity Infusion Conditions
The recently approved equity infusion proposal comes with two conditions. Firstly, only Rs. 2000 crores will be allocated during the current fiscal year, 2020-2021. Secondly, given the unprecedented financial situation due to COVID-19, disbursement of the proposed amount depends on the readiness and demand for debt raising. NIIF will take all necessary steps to employ the equity investments from domestic and global pension funds as well as sovereign wealth funds swiftly.
NIIF Debt Platform: Components and Contribution
The NIIF debt platform comprises Aseem Infrastructure Finance Limited (AIFL) and the NIIF Infrastructure Finance Limited (NIIF-IFL). AIFL is an Infrastructure Finance Company set up to transform the growth of India’s infrastructure debt financing. On the other hand, the NIIF-IFL was incorporated as an Infrastructure Debt Fund (IDF) in 2014 with the purpose of financing operational infrastructure projects. This platform is projected to contribute nearly Rs. 1 lakh crores in debt to the infrastructure sector over the coming five years.
Impact
The NIIF Debt Platform will act as a key driver attracting more investments into the infrastructure sector mapped out in NIP. This process will also help decrease banks’ exposure to infrastructure projects, creating room for new green-field projects. Moreover, it will enhance the liquidity of infrastructure assets and lower risks involved. A well-capitalized, well-funded and well-governed NIIF Debt Platform is expected to play a crucial role in infrastructure financing and developing India’s bond market.
National Investment and Infrastructure Fund (NIIF)
NIIF is a government-supported entity designed to supply long-term capital to India’s infrastructure sector. The Indian government has a 49% stake in NIIF with foreign and domestic investors holding the remaining shares. Owing to the significant stake held by the Centre, NIIF is considered India’s quasi-sovereign wealth fund. Setup in December 2015 as a Category-II Alternate Investment Fund, it manages over USD 4.3 billion of capital across three funds – Master Fund, Fund of Funds, and Strategic Opportunities Fund. NIIF’s registered office is in New Delhi.
Terms
Debt financing is a company borrowing money to be paid back at a future date with interest. Equity signifies the shareholders’ stake in the company as shown on a company’s balance sheet. A sovereign wealth fund is a state-owned investment fund comprised of money generated by the government, often from a country’s surplus reserves. A pension fund provides retirement income and a bond is a fixed income instrument signifying a loan made by an investor to a borrower.
