New Initiatives

Some progress in infrastructure financing despite slow takeoff

Given the lack of adequate financing for infrastructure, alternative sources are being looked at to reduce dependence on banks, which   have slowed lending to the infrastructure sector owing to a number of issues. During the year, the National Investment and Infrastructure Fund (NIIF) closed its first major deal. Many pension and sovereign wealth funds (SWFs) have shown interest in participating in the fund. The New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB) have also extended credit to various infrastructure projects in the past 12-15 months.


The NIIF was created by the government in December 2015 based on the concept of an SWF. It is structured as a Category II Alternative Investment Fund registered with the Securities and Exchange Board of India. The NIIF is targeting a corpus of Rs 400 billion, of which the government will contribute 49 per cent and the remaining 51 per cent will be raised from foreign and domestic strategic investors.

The fund will provide equity/quasi-equity support to non-banking financial companies/ financial institutions that are engaged in financing infrastructure projects. These institutions will be able to leverage this equity support and provide debt to commercially viable greenfield, brownfield and stalled projects. The NIIF will be able to invest either directly in infrastructure projects/companies or create sub-funds under it. It is envisioned as a mother fund with several sectoral feeder funds.

In Budget 2017-18, the government made an allocation of Rs 10 billion towards the NIIF, drastically lower than the Rs 40 billion allocated in Budget 2016-17, due to low fund mobilisation. The amount will be leveraged to raise Rs 80 billion from various investors to fund projects worth Rs 160 billion. Further, it also signed an investment agreement worth $1 billion with the Abu Dhabi Investment Authority (ADIA). With the signing of the agreement, ADIA will become the first institutional investor and a shareholder in NIIF Limited, the NIIF’s investment management company.

The governments of India and the UK have decided to set up a sub-fund to finance clean energy projects in India. Known as the Green Growth Equity Fund, the sub-fund will initially raise £500 million. Of this, £240 million will be invested by the governments of India and the UK (£120 million each) and the remaining £260 million will be raised through private investors.


The NDB, an international financing institution, has been established by Brazil, Russia, India, China and South Africa, with a mandate to extend financing for the execution of infrastructure projects as well as support sustainable development in emerging economies and developing countries, complementing the efforts of multilateral agencies and financial institutions. Total capital contribution from member countries is to the tune of $1.5 billion.

Since its establishment in July 2015, the bank has extended financial assistance of $1,415 million to a total of four projects in India, the first being a $250 million loan for renewable energy projects. Subsequently, the bank signed a loan agreement worth $350 million for the Major District Roads Project and $470 million for the Multi-Village Rural Drinking Water Supply Scheme in Madhya Pradesh, and $345 million for rehabilitating the Indira Gandhi Canal System in Rajasthan.


The China sponsored AIIB was established in October 2014 to address the $1.7 trillion per year infrastructure investment requirement in Asia. The AIIB officially opened in January 2016 with an initial capital of $100 billion. The bank comprises 57 founding members, of which India is the second largest shareholder, with 8.52 per cent equity.

During 2017, a total of four projects, worth $739 million, have been approved by the AIIB. The maximum funds have been allocated for the Gujarat Rural Roads Project ($329 million), followed by Andhra Pradesh’s 24×7 Power for All project ($160 million), the India Infrastructure Fund ($150 million) and the Transmission System Strengthening Project ($100 million).

The way forward

The infrastructure financing space, with stymied bank credit, warrants greater attention. The AIIB and the NDB will expand the funding avenue for India, which had mostly relied on multilateral agencies such as the World Bank and the Asian Development Bank for external aid. Dedicated sources such as the NIIF have the potential of attracting foreign capital into the infrastructure sector. Though some progress has been seen in this space, much needs to be done for the smooth takeoff of the vehicle.


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