Insta

National Infrastructure Pipeline: Union Cabinet Approves Bill To Set Up A New Bank To Exclusively Fund Infrastructure Projects

Swarajya Staff

Mar 16, 2021, 05:13 PM | Updated 05:13 PM IST


National Infrastructure Pipeline
National Infrastructure Pipeline
  • The new development finance institution (DFI) is widely viewed as a potentially transformative move that could help significantly bridge the funding requirements for the infrastructure projects identified under the ambitious Rs 102 lakh crore (US$1.4 trillion) National Infrastructure Pipeline.
  • Operationalizing a key announcement made in this year's Union Budget, Finance Minister Niramal Sitharaman today (Mar 16) said that Union cabinet has approved the bill for establishing a development finance institution (DFI) to finance long-term infrastructure projects.

    The government has already allocated ₹20,000 crore in FY22 during Budget 2021 to capitalise the institution.

    "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 Finance Minister noted.

    "The Cabinet has cleared this bill, through which we will have an institution and institutional arrangement, which will help in increasing long term funds," finance minister said.

    "I expect the institution to raise up to Rs 3 trillion in the next few years," Sitharaman briefing the reporters after a cabinet meeting.

    The DFI would seek to raise funds from global pension and insurance sectors for investment in new projects, carrying certain tax benefits, she added.

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

    DFI will be established with 100% govt ownership and gradually brought down to 26%, she said.

    The new development finance institution (DFI) is widely viewed as a potentially transformative move that could help significantly bridge the funding requirements for the infrastructure projects identified under the ambitious Rs 102 lakh crore (US$1.4 trillion) National Infrastructure Pipeline.

    The government will also introduce the National Bank for Financing Infrastructure and Development Bill, 2021 in the current Budget session.

    “To set up a new DFI as a provider, enabler and catalyst for infrastructure financing and as the principal financial institution and development bank for building a supportive ecosystem,” the list for legislative business for the ongoing Parliamentary session stated.

    The bill is expected to outline the design of the DFI in terms of its institutional form, ownership, source of funds, nature of financing, and governance structure.

    On 23 August 2019, the Finance Minister, while announcing a series of measures to revive economic growth, had mooted the proposal to establish a new Development Finance Institution (DFI) to address the country’s infrastructure financing needs.

    The Finance Minister said “In order to improve access to long-term finance, it is proposed to establish an organisation to provide credit enhancement for infrastructure and housing projects, particularly in the context of India now not having a development bank and also for the need for us to have a institutional mechanism. So, this will enhance debt flow toward such projects."

    Subsequently, on December 31, 2019, the Government of India announced a five-year Rs 102 lakh crore National Infrastructure Pipeline (NIP), prioritising energy, transport, and urban development. Under the NIP state and central governments expected to bear 78% of the financing,with the rest coming from private investors.

    Explained: Why India Needs A New Development Finance Institution


    Get Swarajya in your inbox.


    Magazine


    image
    States