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NHAI sets up panel for Infrastructure Investment Trust selections

Context: 

National Highways Authority of India (NHAI) has decided to use Infrastructure Investment Trust(s) (InvIT) as a vehicle for mobilising funds for constructing road infrastructure.
NHAI

Infrastructure Investment Trust (InvITs):

  • An Infrastructure Investment Trust (InvITs) is like a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as return.
  •  InvITs work like mutual funds or real estate investment trusts (REITs) in features. InvITs can be treated as the modified version of REITs designed to suit the specific circumstances of the infrastructure sector.
  • The objective of InvITs is to facilitate investment in the infrastructure sector.
  • InvITS are like mutual funds in structure. InvITs can be established as a trust and registered with Sebi. 
  • An InvIT consists of four elements:
    •  1) Trustee- who inspects the performance of an InvIT is certified by Sebi and he cannot be an associate of the sponsor or manager., 
    • 2) Sponsor(s)-e people who promote and refer to any organisation or a corporate entity with a capital of Rs 100 crore, which establishes the InvIT and is designated as such at the time of the application made to Sebi, and in case of PPP projects, base developer
    • 3) Investment Manager- an entity or limited liability partnership (LLP) or organisation that supervises assets and investments of the InvIT and guarantees activities of the InvIT. 
    • 4) Project Manager- the person who acts as the project manager and whose duty is to attain the execution of the project and in case of PPP projects. It indicates that the entity is responsible for such execution and accomplishment of project landmark with respect to the agreement or other relevant project document.
  • The minimum investment amount in an InvIT Initial Public Offering (IPO) is Rs 10 lakh, therefore, InvITs are suitable for high networth individuals, institutional and non-institutional investors.
  • InvITs are listed on exchanges just like stocks — through IPOs.
  • However, the Indian InvIT market is not yet mature and has supported the formation of 10 InvITs till date of which only two are listed.
  • The InvITs listed on the stock exchange are IRB InvIT Fund and India Grid Trust

Why do we need InvITs?

  • In October 2017, the Centre had launched Bharatmala Pariyojana for the development of 24,800 km of roads at a total investment of Rs. 5,35,000 crore.
  • In order to complete the projects, NHAI needs adequate funds and one of the options is to monetise the completed and operational National Highways assets and offer attractive schemes to private players to invest in construction of National Highways.

Impact :

  • Fund-raising by NHAI and spending on infrastructure will not only provide a fillip to the economy, but will also crowd-in private sector investment.
  • It is a way for the government to tap alternative sources of financing to boost public spending in the roads and infrastructure sector.
  • InvIT holders also benefit from favourable tax norms, including exemption on dividend income and no capital gains tax if InvIT units are held for more than three years.