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.
- Out of the proposed amount, only Rs. 2,000 crore would be allocated during the current year 2020-21.
- 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.
- It comprises of:
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.