The Union Cabinet, chaired by Prime Minister Narendra Modi recently cleared a Bill to set up a government-owned development finance institution (DFI) with initial paid-up capital of Rs 20,000 crore.
Background:
- This legislation was announced by the Union Finance Minister Nirmala sitharaman during the Union Budget 2021-22 speech on 1st February 2021.
- After this announcement, some 7,000 projects have been identified under National Infrastructure Pipeline.
- The government of India has projected the investment of Rupees 111 lakh crore for the period 2020-25.
Key Highlights:
- This proposal was approved in bid to speed-up the process of infrastructure development in India.
- The DFI will be set up in order to raise long-term funds.
- The government will provide a 10-year tax exemption to funds invested in the DFI to attract long-term players such as insurance and pension funds.
- DFI would comprise of a professional board in which 50 percent of the members will be non-official directors.
- Under it, the initial grant will be ₹ 5,000 crores. Later, additional increments of grant will be made in to effect within the limit of ₹ 5,000 crore.
- In the initial phase, new institution will be owned by government while in the later phase, the government’s stake will be cut to 26%.
Significance of DFI:
- A DFI provides risk capital for key infra projects.
- It is considered as a key ingredient for a sustainable and fast infra creation.
