NIF pause set to be lifted from April 1

Use of stake sale proceeds likely to be extended to bank recapitalization and acquisition of assets abroad from 2013-14

The four-year pause on putting disinvestment money in the National Investment Fund (NIF) is set to be lifted from April 1.

The utilization mechanism of the NIF resources is also likely to change from what was envisaged at the time of its inception in 2005 with the government planning to spend the money in identified capital investments in public sector enterprises including bank recapitalization.

The government had decided to put a pause on putting disinvestment money in NIF in 2009 and all the proceeds since then are being used for funding six social sector schemes.

A senior finance ministry official said the ministry had moved the proposal for cabinet approval to lift the pause from next financial year.

He added that cabinet was expected to take up the proposal soon to retain disinvestment proceeds in NIF and then utilize the money for capital investment.

“The idea is that money coming from disinvestment should be utilized for creating capital assets,” the official stressed.

Besides bank recapitalization, the NIF could also be used for creating a sovereign fund for acquiring energy and other mining assets abroad by the CPSEs.

The official said the proposed changes in NIF functioning and creation of Exchange Traded Fund (ETF) of CPSE stocks were likely to be cleared any time.

According to the initial idea mooted at the time of the decision to constitute NIF, 75 per cent of the income from the fund broadly was to be spent to finance select social sector schemes in education, health and employment, and 25 per cent to meet the capital investment requirements of profitable and revivable PSEs.

The NIF corpus as on August 31, 2012, was Rs 1,814. 45 crore. And the fund is managed by three public sector mutual funds – SBI, LIC and UTI mutual funds.

The change in utilization pattern of NIF money had come on November 5, 2009, when in view of the difficult economic situation caused by the global slowdown and severe drought, decided to grant one-time exemption for utilization of all proceeds from disinvestment of CPSEs deposited in the NIF over a period of three years -- April 2009 to March 2012 – to be made available in full for investment in specific social sector schemes decided by the Planning Commission and department of expenditure.

Consequently, the disinvestment proceeds during this period to the tune of about Rs 59,000 crore were made available for capital expenditure in the six identified social sector schemes.

The pause was subsequently extended for one more year up to March 2013 due to the continuing difficult economic conditions.

The disinvestment proceeds are currently being routed through NIF, to be used in full, for funding the capital expenditure of six social sector schemes – Mahatma Gandhi National Rural Employment Guarantee Scheme, Indira Awas Yojana, Rajiv Gandhi Gramin Vidyutikaran Yojana, Jawaharlal Nehru National Urban Renewal Mission, Accelerated Irrigation Benefit Programme and Accelerated Power Development Reform Programme.