The Central Government has approved the formation of a Development Finance Institution (DFI) in the country. The decision was taken in the Union Cabinet meeting on Tuesday. After the meeting, Finance Minister Nirmala Sitharmana gave information about this at the press conference. She informed that the Development Finance Bank will operate as an investment bank. Infrastructure projects will be funded through this.
An announcement was made in the budget
The Finance Minister said that during Budget 2021 we had said that we will create a National Bank for infrastructure and developmental activities. She informed that the Union Cabinet has approved the establishment of the Development Finance Institution. The Finance Minister said that earlier attempts were also made to get alternative investment funds but due to various reasons, no bank could be formed which fund development and take long term risk.
Seed funding from this year’s budget
The Finance Minister said that DFI will help in raising long term funds. Budget 2021 will provide it with initial funds. This year DFI will have a capital of around Rs 20000 crores, initial grants will be of Rs 5000 crores and increments will be made in addition to the grant in the limit of Rs 5000 crores.
She further said that the government is also planning to issue some securities for DFI. This will reduce the cost of funds. All these steps will help DFI to take advantage of the initial capital and raise funds from various sources. At the same time,the Indian bond marketwill also see positive growth.
Tax holiday for DFI
The new DFI will have a tax benefit to raise money in the long term. Sitharaman said that it will get some tax benefits for a long period of 10 years.
Source of fund
Fund for DFI will be collected through the Government’s long term development funds like Pension Fund and the Sovereign Fund. Besides, the government is also planning to issue some securities to the proposed DFI, which will reduce the cost of funds. The move will provide a boost to the bond market in India with DFI.
7000 development projects identified
The Finance Minister in her Budget 2019-20 speech quoted a study for the establishment of DFI to promote the funding of infrastructure. Around 7,000 projects have been identified under the National Infrastructure Pipeline (NIP) during 2020-25 with an estimated investment of Rs 111 lakh crore. The new DFI will help in funding these long term projects.