India to Boost Infrastructure Spending Through Pension Monies

The aim is to use the Employee Provident fund to boost infrastructure, according to a Labour Ministry source.

The Modi government institutionalised the NIIF to boost spending on infrastructure.(Photo: iStockphoto)

The Modi government will seek to use the Employees Provident Fund (EPF) to boost spending on infrastructure. A portion of the incremental EPF corpus will be used to bolster the National Investment and Infrastructure Fund (NIIF).

A high-ranking official in the Labour Ministry told BloombergQuint that the government intends to diversify EPF corpus investments.

The NIIF will be funded through the EPF corpus. This proposal will be placed before the EPF’s Central Board of Trustees (CBT).

Labour Ministry Source

The Labour Unions are also on board with this proposal as well.

Labour unions will support EPF investment in NIIF. The unions will support the spending of EPF money in nation building.

DL Sachdeva, General Secretary, All India Trade Union Congress (AITUC)

Sachdeva is a member of the EPFO’s Central Board of Trustees, the statutory body entrusted with the administration of funds created and vested with the Board. While the decision on the pattern for investment of EPF funds lies with the Labour Ministry, the CBT’s approval is sought by the government.

The EPFO currently spends 65 percent of the incremental corpus in government-issued bonds. Another 30 percent is earmarked for corporate bonds while 5 percent is reserved for investments in equities.

Labour Minister Bandaru Dattatreya informed reporters recently that the 5 percent investment of EPF is Rs 6,788 crore. By that calculation, the total corpus of EPF investments stands at over Rs 1.35 lakh crore.

Move to Impact Corporate Bond Market

The government’s intention to rework EPF investments does not auger well for the corporate bond market.

A Labour Ministry official told BloombergQuint:

The returns from government-issued bonds exceeds the returns from bonds issued by private companies. We will rework the investment mix to exclude poorly performing entities and replace them with the NIIF.

Funds for Infrastructure Financing

The Modi government institutionalised the NIIF to boost spending on infrastructure. The NIIF will be supervised by a 5-member governing council headed by the Finance Minister.

The government hopes to find resources for some of the stressed infrastructure projects by effectively leveraging the NIIF.