Cabinet clears plan to set up DFI for infra projects
- The government will infuse ₹20,000 crore capital in the new financial institution, and gradually reduce its stake to 26% from 100%, said Sitharaman.
The Union Cabinet on Tuesday cleared the introduction of a bill in Parliament to set up a professionally run Development Finance Institution (DFI) with ₹20,000 crore government-funding to leverage about ₹3 lakh crore long-term finance for infrastructure sector projects, finance minister Nirmala Sitharaman said.
After setting up a wholly owned DFI, the government will gradually reduce its stake to 26%, she told reporters after a Cabinet meeting. The government will infuse ₹20,000 crore capital in the new financial institution, she said.
“Today, the Cabinet has cleared this bill through which we will have an institution and institutional arrangement, which will help in raising long-term funds,” she said.
The finance minister announced the proposal to set up DFI in her budget speech on February 1.
The bill to create a new financial institution will be introduced in Parliament soon. It will start from a “clean slate”, the finance minister said without giving any definite time-frame.
“It will have a professional board and at least 50% of them will be non-official directors,” she said, adding that some of the board-level positions, including chairmanship of the company, would be held by “eminent” persons. The board will be empowered to remove even whole-time directors, she said.
In order to attract best talents, the institution will be professionally run with market-determined emoluments, have higher age-limit and longer tenure for the managing director (MD) and deputy managing directors (DMDs).
“We are making sure that this organisation will have people of such heft and professional standards... it should have enough character for a development finance institution, which will meet this century’s requirement,” she said.
Sitharaman said there were at least three or four attempts in the past to have alternative investment funds (AIFs), but gradually either they changed their nature of business or became reluctant to take long-term risk.
The government is expecting the new institution to fund projects identified under the ₹111 lakh crore National Infrastructure Pipeline (NIP), which has over 7,000 greenfield and brownfield projects.
“Infrastructure needs long-term debt financing. A professionally managed Development Financial Institution is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, I shall introduce a bill to set up a DFI,” Sitharaman said in her budget speech.
Nilaya Varma, co-founder and chief executive officer of consulting firm Primus Partners, said: “The Infrastructure sector, particularly the ₹111 lakh crore NIP, will be one of the major growth drivers, which is required to bring back the economy on the higher growth trajectory. The funding through DFI will catalyse rapid infrastructure development, which will have cascading impact on all sectors. It is good that the government is moving fast without wasting time.”
The government announced its ambitious NIP in 2019, which would require debt financing of at least ₹60-70 lakh crore in the next four-five years and the DFI-in-the-making would be a key financer for such projects, he said.
NIP was announced by Sitharaman in December 2019 with 6,835 projects.
The pipeline has now expanded to 7,400 projects. Out of that, about 217 projects worth ₹1.10 lakh crore have already been completed.