The government has cleared a bill to set up a government-owned development finance institution (DFI) with initial paid-up capital of Rs 20,000 crore so that it can leverage around Rs 3 trillion from the markets in a few years to provide long-term funds to infrastructure projects as well as for development requirements of the country.

The Budget 2021 has provided Rs 20,000 crore to capitalise the institution. The DFI funding of infrastructure seeks to support the implementation of the burgeoned infrastructure outlay. As widely expected, a pandemic recovery plan has dominated a 37% increase in planned infrastructure spend.

Sitharaman had announced in the Budget 2021 that the government will have 100% ownership in the new development finance institution (DFI). DFI will start with 100% government ownership and gradually brought down to 26%, Sitharaman had said.

According to the Finance Minister, despite attempts to have alternative investment funds, there were no banks that could take up such a high long-term risk and fund the development.

The proposed DFI will have 50% non-official directors, Sitharaman added. DFI will have certain tax benefits for ten years, she further added.

The central government is also planning to issue securities to the Development Finance Institution, by which the cost of funds will come down.

In the Budget 2019-20, Sitharaman had proposed a study for setting up DFIs for promoting infrastructure funding. Around 7,000 projects have been identified under the National Infrastructure Pipeline (NIP), with a projected investment of a whopping Rs 111 lakh crore during 2020-25.

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