NIIF: The Sleeping Giant?

Prithu Sharma 08th Apr 2016

The National Investment and Infrastructure Fund (NIIF), seems to have finally come out of its Odin nap (not sleep) with its first investment. 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. Its proposed corpus of funds is INR 40,000 crore and the government will be investing INR 20,000 crores into it from budget since the government's stake has been fixed at 49 per cent. The remaining INR 20,000 crores is expected to come from private investors.

The recent investment by NIIF, in partnership with DP World, will create a platform for utilising opportunities in sea-ports, river ports, freight corridors, port-led special economic zones, inland container terminals, and logistics infrastructure including cold storage. According to DP World's press release, regarding the same, the platform seeks to "invest up to USD 3 billion of equity to acquire assets and develop projects in the sector."

However, the gung-ho about the investment is misplaced. A single investment, more than two years after getting registered is no big feat, nor is it sufficient. Envisaged as a means to bridge the infrastructure funding gap in view of the twin balance sheet problem plaguing the banking sector(the primary infrastructure fund provider in the country); NIIF, as of now, has fallen way short of its mark.

Registered in December 2015,NIIF was unable to garner any funding commitments from foreign sovereign wealth funds or investors till Q1 FY 18. And even though it has gathered some steam in the past few months by securing investments from local and international partners, its pace of operations, is still very much lacking. Recent estimates by the government itself had placed the infrastructure investment-funding gap for 2017-22 at USD 646 billion (INR 41 trillion). In view of such a massive shortfall for infrastructure funds, NIIF's underperformance becomes even more of an issue.

The lethargy in NIIF's operationalising of its mandate seems to be emanating from its over cautious approach in choosing partners and projects to invest in. To elucidate the point let us have a look at its investment strategy statement, which goes

"NIIF will be highly selective in partnership selection to ensure the partner is value additive and complementary."

Now, while some caution is always preferred, NIIF seems to be drawing from the banking sectors experience of funding infrastructure projects. Hence its modus operandi seems to be a classic case of - once bitten twice shy.

Apart from the pressing need of the Indian economy for NIIF to perform well, there is also a political consideration, which needs to be accounted for. Seldom has been the case that a project initiated by one political regime is continued as business as usual by the regime succeeding it, that too if it is underperforming to begin with. Keeping this in view, NIIF, a project of the NDA, may have less than 20 months left to prove its mettle and be saved from finding its place on the list of schemes sacrificed at the altar of political retribution.

Given the aforementioned, NIIF should reconsider its investment strategy in order to realise its raison d'etre. Accordingly, it should be more readily accepting of contributors to its fund, and should seek out investment opportunities on a war footing. With an infrastructure-funding gap to the tune of USD 600 million, assessing desirable projects for investing should not be much of an exercise. Neither should the fund find it difficult to get credible investors internationally, given the willingness of foreign players to be part of India's growth story. In the end, what becomes of NIIF and the projects that it undertakes will depends on its ability to improvise, and be flexible in utilising its opportunities.

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