Cabinet Approves Capital Infusion into NIIF

• 27 Nov 2020

Why in News

Recently, the Union Cabinet has given its approval to the proposal for equity infusion by the Government of Rs. 6000 crores in NIIF Debt Platform - sponsored by the National Investment and Infrastructure Fund (NIIF).

• This was one of the twelve key measures made by the Union Minister for Finance as part of Government of India’s stimulus to the economy, under Atmanirbhar Bharat.

Key Points

• Background:
  
  • As per the National Infrastructure Pipeline (NIP), investment in infrastructure sector is targeted at Rs. 111 lakh crore over the next 5 years across various sub-sectors, creating substantial need for debt financing.
  • It would require at least Rs. 60 to 70 lakh crores in debt financing.
  • Current environment requires well-capitalized specialized infrastructure focused financial institutions, such as NIIF Debt Platform being developed by NIIF which can focus on lending across the project life cycle with a strong capital base and expertise driven approach.
• The current approval of equity infusion is subject to two conditions:
  
  • Out of the proposed amount, only Rs. 2,000 crore would be allocated during the current year 2020-21.
    
    • However, in view of the unprecedented financial situation and availability of limited fiscal space due to the prevailing Covid-19, the proposed amount may be disbursed only if there is readiness and demand for debt raising.
  • NIIF will take all necessary steps to use the equity investments from Domestic and Global pension funds and sovereign wealth funds expeditiously.
• NIIF Debt Platform:
  
  • It comprises of:
    
    • Aseem Infrastructure Finance Limited (AIFL): It is an IFC (Infrastructure Finance Company), established with the aim of playing a transformative role in growth of Indian infrastructure debt financing.
    • NIIF Infrastructure Finance Limited (NIIF-IFL): It was incorporated as an Infrastructure Debt Fund (IDF) in 2014 for financing operating infrastructure projects.
  • Contribution: It is expected to contribute nearly Rs. 1 lakh crores in debt to the infrastructure sector over the next 5 years.
  • Impact :
    
    • It will act as a catalyst in attracting more investments into the infrastructure sector as envisaged in NIP.
    • The process will also help relieve exposure of banks to infrastructure projects and free up space for new green-field projects.
    • It will enhance liquidity of infrastructure assets and lower the risks.
    • It is expected that a well-capitalized, well-funded and well-governed NIIF debt Platform can play a major role in infrastructure financing and development of the bond market in India by acting as an intermediary between the bond markets and infrastructure projects and companies.

National Investment and Infrastructure Fund

• NIIF is a government-backed entity established to provide long-term capital to the country’s infrastructure sector.
  • The Indian government has a 49% stake in NIIF with the rest held by foreign and domestic investors.
  • With the Centre’s significant stake, NIIF is considered India’s quasi-sovereign wealth fund.
• It was set up in December 2015 as a Category-II Alternate Investment Fund.
• Across its three funds viz. Master Fund, Fund of Funds, and Strategic Opportunities Fund, it manages over USD 4.3 billion of capital.
• Its registered office is in New Delhi.

Terms

• Debt financing:
  
  • When a company borrows money to be paid back at a future date with interest, it is known as debt financing.
• Equity:
  
  • Equity represents the shareholders’ stake in the company, identified on a company's balance sheet.
• Sovereign wealth fund:
  
  • A sovereign wealth fund is a state-owned investment fund composed of money generated by the government, often derived from a country's surplus reserves.
• Pension fund:
  
  • A pension fund is any plan, fund, or scheme which provides retirement income.
• Bond:
  
  • It is a fixed income instrument that represents a loan made by an investor to a borrower. In simpler words, a bond acts as a contract between the investor and the borrower. Mostly Companies and Government issue bonds and investors buy those bonds as a savings and security option.

Source:TH