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How Modi’s Infrastructure Fund Will Be A Game Changer

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Narendra Modi-led Bharatiya Janata Party was elected on a promise to develop India’s sluggish economy by creating jobs in manufacturing and infrastructure. As Modi completed his first year in office with modest achievements and incremental change, India’s business leaders are looking for him to step up efforts to boost growth in the $1.9 trillion economy. At the top of India Inc.’s wish list are investments in infrastructure, simplification of rules for acquiring land and implementation of a proposed national sales tax. Executives say the government should take the lead in financing new roads and public projects to give the maximum boost to Asia’s third-biggest economy, reports the Bloomberg.
 
At present, some of the initial euphoria about Modi’s development agenda has begun to dissipate. According to a Reuters report, analysts are of the view that the government will likely miss its 2017 infrastructure investment target, though it is not clear by how much nor what the percentage will be from private sources.
 
To get the private sector serious about infrastructure again, the finance ministry is all set to soon launch the National Investment & Infrastructure Fund (NIIF) with a corpus of Rs 20,000 crore to fund new projects in railways, highways, ports and housing, according to media reports. The government wants private companies to contribute half of a $1 trillion investment target over five years to 2017 to alleviate clogged-up roads and end electricity blackouts. A report by consulting firm McKinsey in 2013 said that infrastructure investment equivalent to 1 per cent of the gross domestic product could create an additional 3.4 million direct and indirect jobs in India.
 
Here’s five key things to know about Modi’s infrastructure fund 
1) Modi's gamble is that infrastructure investment will generate dividends for the poor in time for the next general election by increasing the economy's capacity to grow through better roads, ports and railways. India’s goal is $1 trillion of spending on roads, ports, power and other infrastructure from 2012 to 2017. About 75 per cent of this would need to be financed through debt.
 
2) With the 100 smart city project estimated to cost Rs 1 lakh crore, the fund could be a game changer for the Modi government's bid to find cash for its infrastructure push. The fund will leverage the corpus to raise low cost-debt through bond issues for investment. Debt up to 10 times the corpus, or up to Rs 2 lakh crore, could be raised on a long-term basis. Part of the money for the NIIF may come from PSUs; state-run funds with huge idle reserves may have to pay a special dividend, reports The Telegraph.
 
3) The plan for the NIIF comes from a report prepared by chief economic adviser Arvind Subramaniam, which called for "reviving targeted public investment as an engine of growth in the short run". The NDA government’s 2015-16 budget increased infrastructure spending by Rs.70,000 crore. Its priority: roads and railways.
 
4) The NIIF is to be the main vehicle for funding ambitious projects such as the east-west dedicated freight corridor, high-speed railways, stalled highways and the 100 smart cities recently cleared by the cabinet.
 
5) The NIIF may park part of its funds with the National Housing Bank and the Indian Railway Finance Corporation (IRFC), which in turn will use these funds for the projects. Many infrastructure projects, such as highways, have been stuck for various reasons and turned into bad assets for banks, which traditionally lend for a 7-10 year window. The NIIF through its pass-throughs, such as the National Housing Bank and the IRFC, will fund for a longer window of 20 years or more.
 
 
 
 
 
 
 
 
 
 
 


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