National Infrastructure Investment fund

National Infrastructure Investment fund is an Alternative Investment fund and India’s first sovereign investment fund. The large investment funds/fund managers are facilitated to drive the growth of India’s economy through this fund.

You can read a brief intro into the SWF (sovereign wealth fund) here: Sovereign wealth fund.  

It may be noted that SWF in India is not to park excess fund from natural resources as done by countries like Kuwait, Saudi Arabia, Botwana etc. It is for fund receipt into India. The fund is anchored by Government of India, who is a minority share holder. The NIIF has three types of funds (portfolios)

A.      Master fund – To invest in core assets like ports , roads etc.

B.      Fund of funds – The fund managers with proven track records in association with NIIF invest in areas like Green energy, Affordable housing etc.

C.      Strategic fund – to invest/fund in infrastructure projects  eg: Equity shareholding of 59% in IDFC-IFL.

Advantages for the investors

1.                   Attractive long-term risk-adjusted returns for our investors on a       sustainable basis.

2.                   Anchored by Government of India

3.                   There is 100% tax exemption to their interest, dividend         and capital gains income in respect of investment made in           infrastructure and other notified sectors before 31st March,             2024  and with a minimum lock-in period of 3 years .

4.                   providing local access and expertise

Risks

There is risk of project delays with respect to speed of execution, local conditions, legal issues etc.

The inflow of funds to a particular sector may lead to creation of bubble, stock price manipulations.

Note:  

At the time of writing this article, The world famous firms like DP world, Roadis, ADIA etc are investing in India through the NIIF. 

What is purchasing power parity?

Purchasing power parity

The PPP or purchasing power parity is a macro-economic metric that can be used to measure a country’s GDP. The PPP uses a basket of goods approach ie: a set of goods which is bought by these currencies.

The currencies are first converted into dollar value. Then, the amount of dollar value which can buy the same basket of goods in two countries can be calculated.

Eg:

Lets take country A where i-phone is 100$ and another country B where i-phone is 200$, here the purchasing power of country A is double that of the country B with respect to i-phone.

The i-phone is a single product, to have meaningful calculation we add many goods and services eg:- electricity, milk, etc. Now this is called “basket of goods”.

For calculation, the currency of the nations A and B has been converted to common currency ie: dollar. The PPP can show the size of the country’s economy.

What are the criticisms of PPP model?

Let us assume that price of milk was compared between two countries

Country A  1litre = 2 dollar	Country B  I litre = 1 dollar
Milk is good quality, always preserved well, quality and safety tests done	Quality is poor, fluctuating with no quality tests, adulteration high.

Here though, you can buy double quantity of milk in country B, the quality defeats the quantity.

Similarly, Lets imagine B is a big country where a machinery is available at 500$ in city which is added in basket of goods. Now, a far-off villager buy this product from city and take it. The transport cost is high ( no good public transport, no great roads, high local area tax for new machinery etc) then the product costs villagers 700$ (500$ + 200$ transportation). These costs are not included in the PPP calculation.

There may be trade barriers, taxations etc. making goods/services unavailable/costly.

Thus, in-depth analysis are needed for accurate calculations.