Cabinet approves bill to set up Development Finance Institution

The union cabinet, on March 16, 2021, approved a bill to set up a Development Finance Institution (DFI), to offer long-term capital support for the sector, in a move that could speed-up the process of infrastructure development in India.

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By setting it up, Government can leverage around Rs 3 trillion from the markets in a few years to provide long-term funds to infrastructure projects as well as for development needs of the country.

Besides, the government will give Rs 5,000 crore as grant to the institution. The grant has been provided as tax-saving bonds.

The amount will provide for the hedging cost if the DFI borrows from multilateral or bilateral institutions and it will subsidise the guarantee fee.

The DFI will be fully government-owned initially and the promoter’s stake will be brought down to 26 per cent in the next few years. At all times, the government will continue to hold 26 per cent in the entity.

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.