Various Entities Launched In Recent Times for Mobilization of Resources

As part of Reforms, the government in recent years have established institutions for long-term pools of capital across a various sectors ranging from infrastructure to agriculture, from start-ups to education.  In this article, we are discussing on how the National Investment Fund and Infrastructure Fund (NIIF), the Long Term Irrigation Fund (LTIF), the Higher Education Financing Authority (HEFA), and the India Aspiration Fund (IAF) are changing the way government channelizes financing resources to these critical sectors.

NIIF

The National Investment and Infrastructure Fund (NIIF) was proposed in Union Budget 2015 and got established in December 2015. The government has set up this Rs. 40,000 crore fund to provide long term capital for infrastructure projects.

Objective

The objective of NIIF is to maximise economic impact through infrastructure development in viable projects both greenfield and brownfield, including stalled projects, mainly in the core infra sector.

Structure

NIIF has been structured as a fund of funds and set up as Category II Alternate Investment Fund (AIF) under the Securities and Exchange Board of India (SEBI) Regulations. Total corpus of the fund is Rs. 40000 Crore.  The government will invest Rs.20,000 crores into it from budget while the remaining Rs. 20,000 crores are expected to come from private investors. Government stake in the fund has been fixed at 49%. This stake structure (49% government, 51% private) will help NIIF to be seen with characters of both sovereign fund as well as private sector.

NIIF is a fund of funds. This implies that there would be multiple alternative investment funds underneath the main fund. Examples of such funds include stressed-assets fund, renewable energy fund, brownfield projects fund etc.

Governance

NIIF has been set up as a Trust registered under the Indian Trust Act. The activities of NIIF will be overseen by a Governing Council, which is to be headed by Finance Minister and which has been formed to oversee the activities of NIIF. In addition, there will be five members to this council. The mandate of the Council is approval of guidelines for investment of Trust property/Corpus of NIIF and parameters for appointment and performance of investment managers/advisors.

Functions of NIIF

NIIF will raise funds from investors and markets and would invest the same in companies, institutions and infrastructure projects. It will also provide advisory services.

Source of Funds

The sources of funds for NIIF are as follows:

  • Government budgetary funds to each AIF set up under NIIF. These funds will be provided every year as required.
  • Private investors: The fund will solicit equity participation from strategic anchor partners. It is also expected to attract overseas investors, PSUs, domestic pension, provident funds and NSSF (National small savings fund) also. The international pension funds and sovereign wealth funds from Singapore, Russia and the UAE have showed interest to invest under the fund. On February 2, 2016, NIIF and Russia’s RUSNANO OJSC have signed an MoU to set up the Russia-India High Technology Private Equity Fund for joint implementation of investments into projects in India.

NIIF: Significance and Constraints

Significance of NIIF

NIIF will invest along different strategies, as a direct investor, in strategic greenfield projects. The NIIF can also be a perfect solution for the ballooning NPA problem since the fund could buy stressed assets and then sell them off to private investors.

The equity of government in the fund is below 51% to keep it out of the purview of CAG, CVC, CBI. This makes NIIF not really a government company in strict terms. Hence, it’s functioning would not have any major interference. This would help it multiply the original corpus manifold and boost investment levels in the country.

Constraints

The NIIF is facing a serious constraint to its functioning in the form of law ministry’s proposal to alter the original proposal under which the fund advisor was given ‘exemption from liability’ in case investments went wrong. The law ministry wants to change this proposal as it is of the opinion that no one can get a general immunity of this sort. As a result, while selling off bad loans or taking over existing projects, NIIF may take a stand that favours a particular company. In such cases, if the decision went wrong then as per law ministry’s view the fund advisor has to be prosecuted for this and so that it will act as a check on possible nepotism. But this will bring back to the exact situation similar to the one existing in banking sector. Banks do not dare to sell of the NPAs at a big discount of 70-80% for a fear that they will be prosecuted for favouritism.

Long Term Irrigation Fund (LTIF)

LTIF was announced in the Union Budget 2016-17 with an initial corpus of Rs 20,000 crore for funding and fast tracking the implementation of incomplete major and medium irrigation projects. To address the problems associated with perennial irrigation water crisis in rural India, Ministry of Water Resources, River Development and Ganga Rejuvenation has signed an agreement with NABARD to operationalise the Long Term Irrigation Fund (LTIF). LTIF has instituted in NABARD as a part of Pradhan Mantri Krishi Sinchayee Yojana (PMKSY).

Objectives

It aims to bridge the resources gap and facilitate completion of 99 prioritized irrigation projects as part of Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) during 2016-2020. While 54 projects have been identified to be completed by 2017-2018, remaining 45 projects have been identified to be completed by 2019-2020.

LTIF Corpus

The project which will be implemented in a period of four years between 2016-2020 will have an estimated allocation of Rs 77,595 crore with Central and State Government’s share of Rs 31,342 crore and Rs 46,253 crore respectively. The fund corpus is expected to be raised through budgetary resources from Government of India and market borrowings by NABARD.

Implementation

Under this scheme 99 projects have been identified in 18 states, namely, Andhra Pradesh, Assam, Bihar, Chhattisgarh, Goa, Gujarat, Jammu & Kashmir, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Odisha, Punjab, Rajasthan, Telangana and Uttar Pradesh.

To implement the projects, the state governments can borrow directly from NABARD under LTIF to meet the state share in the projects or they can also deploy their own resources. For implementing central projects, National Water Development Agency (NWDA) would borrow funds from LTIF. NWDA is a society registered under Societies Registration Act 1860 functioning under the Ministry of Water Resources (MoWR).

The Loans would be sanctioned by NABARD to NWDA and state governments on a program mode based on the appraisal of individual projects by the Central Water Commission (CWC), recommended by Technical Advisory Committee (TAC). Apart from that these projects are also required to get statutory clearances such as environment, forest, etc. On fulfilling all of the above conditions, the projects will be granted approval by MoWR to NABARD for sanctioning of the loans.

The physical progress and appraisal of the projects under LTIF at the ground level shall be done jointly by CWC and state governments. In addition, regional offices of CWC will also monitor the physical progress of these projects once in every six months.

The projects under LTIF will be completed in a mission mode by the following entities for decision making and project approval:

  • High Level Empowered Committee: For projects costing above Rs. 2000 crore, approval has to be obtained from this committee comprising of Finance Minister, Minister of Water Resources, River Development & Ganga Rejuvenation, Minister of Agriculture, Co-operation and farmer Welfare, Minister of Rural Development, Deputy Chairman, NITI Aayog.
  • Council: For projects costing between Rs 1000 crore and Rs 2000 crore, approval has to be obtained from the council comprising of CEO, NITI Aayog, Secretary (WR, RD & GR), Secretary (A&C0), Secretary (RD), Secretary (Finance) and Chairman, NABARD.
  • Mission: For projects upto Rs 1000 crore Additional Secretary/Special Secretary in MoWR is the Mission Director.

LTIF: Significance and Challenges

Significance

It will help in bridging the gap between irrigation potential created and irrigation potential utilized. Further, it would help in creating additional irrigation potential. Thus it will help in government’s vision of doubling the farmers’ income by 2022 as assured irrigation is a significant prerequisite for achieving the target.

Challenge

Implementation of the project in a time bound manner is likely to be a challenge. Speedy implementation holds the key for bringing in additional hectares under irrigation.

Higher Education Financing Agency (HEFA)

Higher Education Financing Agency (HEFA) is a proposed not-for-profit agency with initial capital base of Rs. 1000 Crore. It was announced in Union Budget 2016-17.

Organization
  • The HEFA will be set up with joint participation by the government and philanthropic donors.
  • It would be set up under Companies Act and will be registered with RBI has Non-banking Finance Company (NBFC).
  • It will be headed by a banker and will have a board with five donors and five institutions selected on rotation basis.
  • All centrally funded higher educational institutions will automatically be added as members.
Objective and Proposed Functions

The major objective of the HEFA is to leverage funds from the market and supplement them with donations and CSR funds.

These funds will be used to finance improvement in infrastructure in top educational institutions. The monies of the fund will be used to finance capital expenditure for building quality infrastructure in IITs, NITs, IIITs and IISERs and central universities. It will also be used to fund state-of-the-art research labs and other infrastructure.

Funding and Finances

Total corpse of the body is Rs. 2,000 crore. Out of this, the initial government contribution will be Rs. 1,000 crore. Remaining Rs. 1000 Crore would be collected from 5 other corporate donors {Rs. 200 Crore each} of which the sponsoring bank would be one. Further, the body will be allowed to raise debt funding of up to Rs. 10,000 crore from the financial markets, including pension and insurance funds. Thus, there is a 1:5 ratio of own funds to debt ratio for HEFA. The debts would be returned back {debt service} from the money received

Inflows would be from market borrowings, CSR funds from PSUs and other through the escrowed student fee accounts and the donations received from the CSR funds and others.

Meaning for a High Education Institute
  • An institute will be eligible for a credit limit of 5 times the annual inflow of the student fee from the institution.
  • The institute can then draw interest-free funds against an approved capital or research project and repay the amount over 5-10 years through the escrowed student fee.
  • Each institute will have to prepare a detailed master plan on infrastructure gaps that will be assessed by an independent group before releasing amount sought.
  • HEFA will monitor implementation, fund utilisation & review outcome, thus necessitating greater financial discipline across institutes.

Analysis

Significance

HEFA will offer an alternative source of funding to institutions to meet their financial requirements. It is also expected to push institutions to become financially self-sustaining entities that do not depend on the government for all their needs.

As India’s institutes of higher learning do not have access to long-term capital to invest in physical and human infrastructure, HEFA will help in leveraging equity to raise up to Rs 20,000 crore for infrastructure development of world-class laboratories at IITs, IIMs, NITs and such other institutions. HEFA is also capable of mobilising corporate social responsibility funds from public and private corporates. All the centrally funded institutions can become HEFA members to receive funding support.

Can HEFA be financially viable?

The above discussion makes it clear that HEFA is a non-profit organization; it will leverage funds from the market and supplement them with donations and corporate social responsibility (CSR) funds. Thus, its operative and regulatory mechanisms would be crucial to ensure its stability. As far as financial viability are concerned, to become self-sustaining, HEFA needs to manage investment of Rs. 25,000 crore over next five years and manage an inflow of Rs. 2000 crore from the fee escrow accounts, assuming that the institutions will fully pay loan amount. Since institutions would get funds without any interest liability and market borrowings would come at around 12%, there might be a need of robust donations as well as viability gap funding from the government.

India Aspiration Fund

The Union Finance Minister Mr. Arun Jaitley launched India Aspiration Fund (IAF) as a fund of funds under the Small Industries Development Bank of India (SIDBI) in order to boost the startup ecosystem. It will invest Rs 2,000-crore in this fund. The fund was launched on 18 August Finance Minister Arun Jaitley

The fund has been established as a Fund of Funds, which would invest in Venture Capital Funds for meeting the equity requirements of MSMEs, especially Start-ups.

Venture Capital Funds floated by experienced Fund Managers, institutional Asset Management Companies are eligible for coverage under India Aspiration Fund.

The fund has been set up with the support from Government of India and Reserve Bank of India

Objective

The fund has been established to cater funding for start-ups and to aid small enterprises in India.

The fund is envisaged to act as a catalyst for attracting Private Capital by providing Equity and Risk capital for Start-ups and MSMEs.

Funding

Contributions out of India Aspiration Fund will be utilized to fund MSME focussed Venture Capital Funds viz., those which invest at least 50% of the Fund corpus in MSMEs including early stage enterprises.

SIDBI would contribute up to 10% to 15% of the Venture Capital Fund Corpus out of India Aspiration Fund.

Life Insurance Corp. of India (LIC) will be a partner and co-investor in this fund.

Significance and Constraints

Significance

The IAF supports the entrepreneurs who take calculated risks to create new markets, build new products, find new consumers and create jobs. As all these activities require high-risk-taking financial capital, the IAF has been set up to invest in VC funds for meeting the equity requirements of micro, small, medium enterprises (MSMEs). Contributions from IAF are made to funds that invest at least half their corpus in MSMEs. The venture capital (VC) industry also raises funds globally to invest in India as the country is lacking its own sources of high-risk equity capital.

Constraint

In the Budget 2017-18, the government has not made any provision for the IAF. When the fund was launched, the government had made allocation of Rs 500 crore for 2015-16. For the financial year 2016-17, the fund’s initial allocation of Rs 600 crore was reduced significantly to Rs 100 crore. The reduction in funding is expected to cripple the efficiency of IAF which was launched with an expectation to catalyse tens of thousands of crores of equity investment in start-ups and MSMEs.

As IAF is a good initiative of the government to support MSMEs and start-ups in India, it needs to be funded appropriately to realize the objectives of creating the fund.

Conclusion

The funds being set up to fulfil the noble objectives are empowering groups like students, farmers and job creators, and has been enhancing the quality of hard and soft infrastructure available to them. These new institutions though initially seeded using budgetary resources are augmenting themselves from contributions of equity or debt coming from other entities like sovereign wealth funds, state governments and public sector enterprises. With multiple stakeholders contributing financially and intellectually, these new institutions are going a long way in helping in channelizing financial resources and create a win-win situation for all participants.

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