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All you wanted to know about...NIIF

Anand Kalyanaraman | Updated on February 25, 2019 Published on February 25, 2019

In the debt-laden Jet Airways’ ongoing battle for survival, a surprise name doing the rounds for proposed equity infusion into the airline is that of NIIF.

What is it?

NIIF, short for National Investment and Infrastructure Fund, is an Indian-government backed entity established to provide long-term capital to the country’s infrastructure sector.

Budget 2015 set the ball rolling for its creation and NIIF was set up as an alternative investment fund (AIF) in December 2016 with a planned corpus of ₹40,000 crore.

The Indian government has 49 per cent stake in NIIF with the rest held by marquee foreign and domestic investors such as Abu Dhabi Investment Authority, Temasek and HDFC Group. With the Centre’s significant stake, NIIF is considered India’s quasi sovereign wealth fund.

Across its three funds — Master Fund, Fund of Funds, and Strategic Fund — NIIF manages $3 billion of capital.

Its portfolio now includes investments in ports and logistics, real estate and renewables. It is also said to have put in bids for four airports — Jaipur, Lucknow, Ahmedabad and Mangaluru — in the recent auctions.

Why is it important?

There is a clear need for big money to finance the burgeoning infrastructure sector in the country. Large and continuous capital infusions are needed across both old and new infrastructure projects and across the spectrum, in roads, railways, ports, airports, energy et al.

Given the sector’s long-gestation periods, these projects need long-term patient money. NIIF can play a key role in this. Especially so in the current challenging circumstances when the bad loan problem at many banks and the IL&FS mess have made traditional infrastructure financiers tight-fisted.

Starting off on a clean slate, NIIF, with government backing, professional fund managers with wide experience in infrastructure financing, and renowned international investors, is in a good position to raise funds and bridge the financing gap.

It can also bankroll other financiers such as IRFC and NHB, thus helping capital outlays grow manifold.

Why should I care?

Rapid infrastructure development can give a major boost to the country’s economic prospects and employment generation. NIIF as a potential major financier can be a game changer.

But to add real value to infrastructure projects and its own investors in the long run, NIIF needs to make its investing decisions on an arm’s length basis, without pressures from its major backer, the government.

This will be in keeping with its stated position that “Investment decisions are based solely on commercial objectives in order to deliver sustained long-term financial returns.”

With the all-important Lok Sabha election just weeks away, the Centre’s anxiety to avoid the bad optics (massive job losses and spike in airfares) resulting from Jet Airways’ possible closure is understandable.

But the NIIF should not be forced to become a bail-out vehicle, similar to LIC and SBI.

Reports suggest that NIIF is likely to buy 19 per cent stake in Jet Airways for ₹1,500 crore.

Investing in high-potential airports is one thing but putting money in troubled companies is another. If this happens and investors eventually lose, the NIIF’s credibility will be dented and its fund-raising prospects will suffer.

Bottomline

Don’t use NIIF to fix what is broke.

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Published on February 25, 2019
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