Union Cabinet clears DFI with capital infusion of Rs 20000 crore
The Finance Minister, Nirmala Sitharaman, announced on March
16, 2021 that the Union Cabinet chaired by Prime Minister, Narendra Modi, has
cleared the proposal of setting up of the “Development Finance Institution
(DFI) with the capital infusion of rupees 20,000 crore.
This proposal was
approved in a bid to boost the infrastructure development in country.
The announcement for this legislation was made by the
finance minister during the Union Budget 2021-2022 speech on February 1, 2021.
After the announcement, some 7,000 projects have been identified under National
Infrastructure Pipeline (NIP).
The government has projected the investment of
Rs 111 lakh crore for the period 2020-25.
What is DFI ?
A development finance institution also known as a development bank or development finance company is a financial institution that provides risk capital for economic development projects on non commercial basis. As of 2005, total commitments of the major regional, multilateral and bilateral DFIs totaled US$45 billion.
The Development Finance Institution will be set up in order
to raise long-term funds.
There will also be some tax benefits on DFI for a
period of 10-years. DFI would comprise of a professional board in which 50
% of the members will be non-official directors.
Under it, the initial
grant will be Rs.5,000 crores.
Later, additional increments of grant will be
made in to effect within the limit of Rs. 5,000 crore.
In the initial phase, new
institution will be owned by government while in the later phase, the
government’s stake will be cut to 26%.
Significance of DFI:
The government is also planning to issue securities to DFI
which in turn will help in lowering the cost of funds.
This will help the
institution to leverage the initial capital and drawing funds from several
It will also positively impact the bond market in India.
institution also seeks to raise the funds from global pension and insurance
sectors in order to invest in new projects.
DFI would also help the banks to
cater the issue of asset-liability mismatch in the bank which are lending to