Cabinet clears proposal to set up Development Finance Institution

New Delhi, Mar 16: The Union Cabinet on Tuesday cleared the proposal to set up a Development Finance Institution (DFI) to generate funds for investment in the infrastructure sector. The proposed legislation will give effect to the Budget announcement made by Finance Minister Nirmala Sitharaman on February 1.

Addressing the press, Finance Minister Nirmala Sitharaman said that "Cabinet has cleared the setting up of a Development Finance Institution (DFI), in acknowledgement of the realization that both development and financial objectives will matter for setting up a DFI."

The plan also includes a capital expenditure target of Rs 5.54 lakh crore for 2021-22, compared with a revised estimate of Rs 4.39 lakh crore for 2020-21.

"Accordingly, I shall introduce a Bill to set up a DFI. I have provided a sum of Rs 20,000 crores to capitalise this institution. The ambition is to have a lending portfolio of at least Rs 5 lakh crores for this DFI in three years' time," she had said.

The finance minister further said that the 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.

The proposed DFI will have 50 per cent non-official directors, Sitharaman added. In her Budget 2019-20 speech, Sitharaman had proposed a study for setting up DFIs for promoting infrastructure funding.

About 7,000 projects have been identified under the National Infrastructure Pipeline (NIP) with a projected investment of a whopping Rs 111 lakh crore during 2020-25.