A rejig in time

The rejig comes at a time when the outlook on fresh private investment appears clouded and factories and manufacturing firms operating with spare capacity reflect demand conditions.

Almost six months after the operationalisation of the National Infrastructure Investment Fund (NIIF), the government has indicated that the investment model would be altered. The plan approved by the governing council of the fund envisages tweaking of the broad framework to allow for investment in individual projects taking into account the interest of potential investors. The NIIF had been conceived as a fund of funds, with several sub funds, to finance projects, both greenfield and brownfield, and also those stuck on the ground with a substantial initial corpus of Rs 40,000 crore with the government wisely capping its investment at 49 per cent. The rejig comes at a time when the outlook on fresh private investment appears clouded and factories and manufacturing firms operating with spare capacity reflect demand conditions.

On the ground, the economic signals have been mixed, with some segments such as commercial vehicle sales and cement production showing improved numbers besides consumption demand, while railway freight fell 13.5 per cent, on a year on-year basis — the lowest in six years –and exports continue to be on a negative trajectory. The bright spot has been higher public spending on roads and railways. The central bank’s forward looking survey sees an improvement in the overall business scenario in the first half of this fiscal. Against this backdrop, any changes in the NIIF’s investment framework which could lead to higher capital expenditure, especially in infrastructure projects, is bound to be welcomed. This is especially so when many private corporates, which had undertaken infrastructure projects in the past, are now struggling to stay afloat given the huge pile of debt on their books.

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It is not just on infrastructure funding that hopes are now being pinned on the NIIF to boost investment and sentiment. State owned banks are also lobbying for a fund or a “bad bank” which will buy out some of their bad loans and help clean part of their books. It certainly may be tempting for the government which controls many of these banks and is called on to provide capital to support such an idea. But if the vision is to create an investment vehicle which will be run professionally and at an arm’s length, without undue pressure on returns like in the case of private equity funds, the investment focus ought to stay on infrastructure projects, be it roads, ports, and other areas. That’s where long term investors such as global sovereign wealth funds are willing to partner a venture where the government too has a stake. It is all the more important, therefore, for the government to act as a facilitator to get more projects off the ground which should help private firms and entrepreneurs to start thinking of investing again.