The Centre’s decision to infuse ₹6,000 crore of equity in the National Infrastructure Investment Fund (NIIF) will give a fillip to the struggling infrastructure sector, especially projects which has lower returns.

NIIF is like India’s version of a sovereign wealth fund, which benefits from its association with the Government, yet is independent in its investment decisions being majority owned by institutional investors. This fund infusion is a follow-on of this year’s Budget announcement and could help NIIF raise ₹1.1 lakh crore by 2025 for financing infrastructure projects (as a part of the National Infrastructure Pipeline).

This has potential to raise debt of around ₹1.1 lakh crore in the next five years and will provide a fillip to this sector, according to Madan Sabnavis, Chief Economist, CARE Ratings. So far, the actual investments made by 3 NIIF funds is close to ₹20,000 crore.

NIIF Strategic Opportunities Fund has set up a Debt Platform comprising an NBFC Infra Debt Fund and an NBFC Infra Finance Company and the Platform has a loan book of ₹8,000 crore and a deal pipeline of ₹10,000 crore.

Increasing stress

The sector was dogged by increasing stress which was accentuated after Covid-19. This resulted in entities hesitant to fund projects, unless they saw stable returns. “NIIF may be able to fund projects which has lesser returns,” said Jagannarayan Padmanabhan, Director, Transport & Logistics, CRISIL Infrastructure Advisory. “This will help India draw more investments into the country,” said Niranjan Hiranandani, President, Assocham.

Sovereign funds such as GIC, Abu Dhabhi Investment Authority, amongst others, are some of most trusted and sought after investors in the world. “The current endeavour to create the core investment of ₹6,000 crore is a correct step in this direction and should allow the NIIF to achieve the critical mass required to invest quite quickly. It will also boost the infrastructure sector in the long run,” said Waseem Pangarkar - Senior Partner, MZM Legal. Recently, NIIF, through its NIIF Master Fund, acquired two road assets from Essel Group, thereby marking entry into the roads and highways sector.

Also, the National Infrastructure Pipeline envisages the States’ budgetary outlay on capital investments to be around 1.7 per cent of GDP and States are expected to fund 24-26 per cent of the total expenditure under the NIP. However, with Covid-19 severely impacting revenues of State governments, and additional expenditure towards healthcare and public welfare, the capital outlay on infrastructure by the States could decline by 10-40 per cent in FY21, though some States may witness a steeper decline depending on the extent of additional borrowings, which is availed, said ICRA.