National Investment Fund

A major question in context with the Disinvestment in India has been the routing and utilization of the money obtained via disinvestment. As we know that the process of disinvestment is not favoured socially because goes against the interest of socially disadvantageous people and society at large.

In January 2005, the Government decided to constitute a ‘National Investment Fund’ (NIF) into which the realization from sale of minority shareholding of the Government in profitable CPSEs would be channelized. The income from the fund is used in investment in various social projects, capital investment in some selected profitable and revivable enterprises. This is based upon the idea that disinvestment does not affect the social objectives of the government.

Please note that the money obtained from disinvestment is shown in India’s receipt budget as other non-tax revenue. Prior to the global economic crisis in 2008-09, 75 per cent of the corpus of NIF were utilised for social sector schemes and 25 per cent for revival for sick PSUs. However, since November 2009, the disinvestment proceeds are entirely routed to Consolidated Fund to be used for funding social sector schemes.

The proceeds first go to Consolidated Fund of India under the designated Head such as other non-Tax revenue. Thereafter, these amounts are appropriated from the CFI, with due approval of parliament and transferred to the selected Fund Managers through CEO of NIF.

Similarly, the income from NIF is deposited in CFI and would be appropriated from it for specific purposes as per the scheme of appropriation approved from time to time.

The corpus of the National Investment Fund is of permanent nature, this means that generally only income generated is used for social expenditures and investments and the corpus is kept permanent. However, it is not a hard and fast rule. Earlier the government decided that the proceeds from disinvestment of CPSEs for a period of three years – from April 2009 to March 2012 – i.e. disinvestment proceeds during this period would be available in full for meeting the capital expenditure requirements of selected social sector programmes decided by the Planning Commission/Department of Expenditure.

NIF is professionally managed by selected Public Sector Mutual Funds. 75% of the annual income of the Fund is used to finance selected social sector schemes, which promote education, health and employment.

The residual 25% of the annual income of the Fund is used to meet the capital investment requirements of profitable and revivable CPSEs that yield adequate returns, in order to enlarge their capital base to finance expansion/ diversification.

Schemes in which NIF income is invested:

• Mahatma Gandhi National Rural Employment Guarantee Scheme
  
• Indira Awas Yojana
  
• Rajiv Gandhi Gramin Vidyutikaran Yojana
  
• Jawaharlal Nehru National Urban Renewal Mission
  
• Accelerated Irrigation Benefits Programme
  
• Accelerated Power Development Reform Programme
  

Current Issue: Reorientation of NIF

In July 2012, it was reported that the government is considering a complete re-orientation of the disinvestment proceeds management mechanism, by turning the Department of Disinvestment (DoD) into a department for government equity and investment management, on the lines of the proposed Department of Government Debt Management. The Department of Disinvestment had given a suggestion to the Government that a holding company or trust can be established on behalf of the government. The proposal also seeks to completely change the system of utilisation of money garnered through government stake sale in public sector companies. Under the new plan, disinvestment proceeds will remain in a specially assigned public account as a specified equity fund, which would be available to the government as ways and means elbow room, allowing the government borrowing to reduce to that extent.

The proposed plant seeks to turn the National Investment Fund (NIF) into the proposed Sovereign equity fund. This fund will then be segregated into following three, keeping in mind specified objectives of the government.

1. One third of the proceeds would go to the public account. The amount credited in the fund with the interest accrued would be available to the government as a ways and means window.
   
2. One third of the disinvestment proceeds and the interest accrued would be utilised either for securing energy and raw materials assets abroad by public sector companies or available to the government as ways and means. This will add to the sovereign fund planned for this purpose by the Planning Commission and currently being discussed by the economic affairs department
   
3. One third would be kept as corpus and the interest income would be invested for meeting specified objectives, including meeting the capital investment requirement of profitable and revivable public sector companies.
   

The proposals further say that the interest amount accruing to the third fund could also be utilised for public-private partnership projects for providing vocational training facilities in the northeast, Jammu and Kashmir and Naxal-affected areas, and in funding critical infrastructure projects like railway bridges for small and medium towns.