Cabinet clears proposal to set up Development Finance Institution (DFI); Capital infusion of Rs 20k cr this year

New Delhi, March 16: The Union Cabinet on Tuesday cleared the proposal to set up a Development Finance Institution (DFI), in acknowledgement of the realization that both development and financial objectives will matter for setting up a DFI, as revealed by Finance Minister Nirmala Sitharaman.

 

Sitharaman had announced in the Budget that the government will set up DFI to fund long-term infrastructure projects in the country. "During Budget, we had mentioned that we will be setting up a national bank to fund infrastructure and developmental activities", she said.

 

 

"Past attempts to have alternative investment funds were taken up, but for various reasons, we ended up with no bank which could take up long-term risk (which is very high) and fund development. The government will initially infuse Rs 20,000 crore in the DFI", Sitharaman said while briefing media on Cabinet decisions, adding that the government plans to raise up to Rs 3 lakh crore in the next few years.

 

 

The government will provide tax exemptions and also amend the Indian Stamp Act to attract pension funds, sovereign funds to invest in DFI. DFI will help raise long-term funds; Budget 2021 will provide initial amount. Capital infusion will be of about Rs 20,000 Cr this year; initial grant will be Rs. 5,000 Cr, additional increments of grant will be made within limit of Rs 5,000 Cr.

 

 

 

 

 

Government is also planning to issue some securities to Development Finance Institution, by which cost of funds will come down. All this will help DFI leverage initial capital and draw funds from various sources; will also have positive impact on bond market in India, she signed off.

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