New AIF to help Govt raise resources for infra boost

The government will invest Rs. 20,000 crore into the NIIF from the budget, with another Rs. 20,000 crore expected to come from private investors.

In yet another major push to boost the infrastructure sector, the government has set up a Rs 40,000 crore National Investment and Infrastructure Fund in the form of a Category II alternative investment fund, which is primarily aimed at pooling funds from international pension funds and sovereign wealth funds from countries such as Russia, Singapore and the UAE for use in India's fledgling infrastructure sector.

India faces a massive infrastructure deficit, which requires some $1 trillion spending during the 12th Five-Year Plan period, which runs from 2012 to 2017. The need is especially acute in India, where infrastructure development has lagged woefully behind that of the economy.

The World Economic Forum in its Global Competitiveness Report 2013–2014, ranked India’s overall infrastructure at 85th out of 148 countries. In comparison, China ranked 74th, Sri Lanka clinched the 54th spot, Thailand came in 61st and Iran ranked higher at 76th. The fact that 65 per cent of all the freight in India is still transported by road and the average speed of trucks and buses is a crawling at 30–40 km an hour goes on to show the abysmal infrastructure deficit in the country.

The government announced a significant increase of Rs 70,000 crore in infrastructure investment in last year's budget with a focus on railways and roads. The government created an additional public investment outlay of Rs 1.25 lakh crore for this infra push, and even frontloaded much of this investment in a desperate bid to fuel the engines of growth in the economy and kick off the capex cycle.

The government has also tried to ease the policy hurdles and brought in a series of reforms such as the new Land Acquisition Act to facilitate faster implementation of projects. But the huge amount of resources required for the infrastructure push was still hard to come by.

It is in this backdrop that the government decided to float the infra fund that will pool in resources of several sovereign funds and pension funds across the world, especially from Singapore, UAE (United Arab Emirates), UK and Russia, which have expressed their willingness to participate and cooperate in various manners with the NIIF.

Sovereign wealth funds of Abu Dhabi Investment Authority, Russian Direct Investment Fund, Singapore’s Government Investment Corporation and Temasek are also said to be keen on investing in the new infrastructure fund. The infra fund is meant to fund development of infrastructure projects, including reviving the stalled ones.

The government will invest Rs 20,000 crore into the NIIF from the budget, with another Rs 20,000 crore expected to come from private investors. The government's share of the infra fund corpus is envisaged to be under 50 per cent.