Budget 2021: Two Reasons Why A Government-Owned Development Finance Institution Is A Good Idea
The objective of a DFI should be efficient mobilisation of infrastructure.
Union Finance Minister Nirmala Sitharaman announced the setting up of a development finance institution (DFI) today (1 February) to fund infrastructure projects.
This DFI would have a funding of Rs 5 lakh crore over three years initially.
In July last year, writing for Swarajya, IAS officer Gulzar Natarajan had argued for such a DFI itself.
In simple terms, the objective of a DFI should be efficient mobilisation of infrastructure.
According to Natarajan, there are primarily two reasons why a government-owned DFI is needed in India.
One, both global and Indian experiences point us to the truth that public finance, direct and indirect, will have to be the major source of infrastructure financing.
Governments should bear a large share of the project risks for many categories of assets, and the private sector should be leveraged only as an instrumentality to deliver public goods.
Two, given the widespread incentive distortions and problems associated with infrastructure contracts, public policy has an important role to play in setting the standards and benchmarks, as well as in encouraging good practices in contract management.
The DFI will thus have an important role to play in achieving both these objectives, as an instrument of indirect public finance.
As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.
Our business model is you and your subscription. And in challenging times like these, we need your support now more than ever.
We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.
Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.