Can a New DFI Fill the Vacuum of Long-Term Infra Financing and Revive the Indian Economy?
DFIs have a mixed record of positive and negative experiences in India. Therefore, it s important to ensure that the new DFI is soundly managed and delivers real public value.
While the design and other details of the new DFI are still unknown, analysts believe that it would focus on infrastructure and housing projects. Photo: Reuters
Government29/Jan/2021
It is widely rumored that a new development finance institution (DFI), in some shape or form, is likely to be announced by finance minister, Nirmala Sitharaman as part of her budget proposals to be presented on February 1, 2021.
In Budget 2021, Expect A New Nationalised Bank, To Exclusively Fund, Monitor Infrastructure Development
by Swarajya Staff - Jan 25, 2021 10:53 AM
Finance Minister Nirmala Sitharaman.
Snapshot
The bank will have an authorised capital of Rs 100,000 crore, with an initial paid-up capital of Rs. 20,000 crore, along with a possible direct line of credit access to RBI.
As we already know, budget 2021-22 will lay special emphasis on Infrastructure building, along with some increased health expenditure, as Finance Minister Nirmala Sitharaman has said on several occasions.
In the budget 2021-22, the government will increase expenditure on infrastructure to recover the economy and generate more employment.
The infrastructure sector is expected to get a significant push as it is pivotal to put the economy back on a growth trajectory.
In the last budget, the government had launched National Infrastructure Pipeline (NIP) that envisaged completing 7,300 projects valued at Rs 111 lakh crore by 2025. However, raising Rs 20 lakh crore every year for these projects will be an enormously challenging exercise.
Analysts expect finance minister Nirmala Sitharaman to announce a development finance institution (DFI) to fund infrastructure projects in segments such as housing and construction that will have high multiplier effects and a major employment generator.
The institution is expected to be created by merging some existing financial institutions to meet the long-term needs of new, stalled, and work-in-progress projects.
EXCLUSIVE | Budget 2021-22 may spell out plans for new development finance institution
Such a DFI is expected to be partially owned by the government and would fund infrastructure projects that banks and other lenders are wary of funding due to long gestation periods. It is a possibility that the India Infrastructure Finance Company could be merged with the new DFI.
The government may also announce some steps to revamp the bond market to finance infrastructure projects.
With infrastructure investment as the main plank on which the Modi government’s roadmap for post-COVID economic recovery is based, Finance Minister Nirmala Sitharaman may announce plans to set up a new development finance institution (DFI) in the Union Budget 2021-22,
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