India’s pension and insurance funds, with over Rs 55 lakh crore of assets under management, could be roped in to finance long-gestation infrastructure projects, with a government taskforce projecting an investment of Rs 111 lakh crore in infra projects over five years to help lift the coronavirus-infested economy and create jobs.
The move aims at garnering sustained finance for infra projects at a time bad loan-laden banks’ capacity to fund such large projects is getting increasingly squeezed and, COVID-19 may put a halt on global capital financing the infrastructure sector.
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Indian pension funds, including NPS (National Pension System) and EPFO have assets under management (AUM) of over Rs 18 lakh crore. Similarly, insurance funds, including LIC, have AUM of nearly Rs 37 lakh crore. Thus, collectively, the pension and insurance AUM exceeds Rs 55 lakh crore.
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A large portion of the funds are invested in the government securities and other safe assets. LIC has been investing in infrastructure created by the Centre and state governments, with the infrastructure AUM for fiscal 2019 at Rs 3.84 lakh crore, or just 10.5% of the total AUM of Rs 36.65 lakh crore.
EPFO, with an AUM of Rs 11 lakh crore, is permitted to invest up to 5% in asset-backed securities. The task force headed by the ministry of finance and Niti Aayog as its member has recommended the officials of the ministry work with pension funds in enabling these to invest in brownfield and Greenfield infrastructure projects.
It has also suggested the Department of Financial Services take immediate measures to reform the pension and insurance systems so that pension savings and insurance coverage support quick growth of pension and insurance savings to at least 30% of GDP by 2025.
Pension assets as a percentage of GDP remain low at 10% as against 130% in Australia.