The Union cabinet on Wednesday approved the setting up of a development finance institution (DFI) to fund infrastructure projects, finance minister Nirmala Sitharaman said.
The DFI will be fully owned by the government initially, but the shareholding will gradually be pared to 26%, Sitharaman told reporters after the cabinet meeting. “We are not thinking below that.”
The government had allocated ₹20,000 crore in the FY22 budget to capitalize the institution and expects it to create a lending portfolio of at least ₹5 trillion in about three years. The finance ministry will soon table a draft law in Parliament to set up the new institution.
Sitharaman said she expects the DFI to leverage its equity to raise as much as ₹3 trillion in the next few years. Tax incentives for the first 10 years and government backing will help the institution keep a lid on fund costs, she said, adding that the government expects it to raise money from pension funds and sovereign wealth funds.
The DFI will have a professional board, with directors drawing market-linked remuneration. The board will have powers to hire and fire whole-time directors. At least half of the board will be non-official directors, including persons of eminence. The idea is to attract the best talent for the institution, which will meet 21st-century requirements, she said.
Sitharaman added that Prime Minister Narendra Modi is keen to implement budget announcements swiftly so that the economic recovery can be sustained.
The new institution is part of the government’s efforts to build infrastructure assets, for which a ₹111 trillion project pipeline has been drawn up, Sitharaman said. The list has as many as 7,000 greenfield and brownfield projects, the minister said.
Financial services secretary Debasish Panda said the new DFI will later decide on the possibility of acquiring or merging with another institution, referring to India Infrastructure Finance Co. Ltd, a state-run infrastructure lender.
Sitharaman also responded to Congress party leader Rahul Gandhi’s criticism of the government’s bank privatization plan and said the administration was fully aware of the interests of the workers.
Gandhi had earlier tweeted that the government was “privatizing profit and nationalizing loss”, referring to the plan to privatize two state-run banks. Selling public sector banks gravely compromises India’s financial security, Gandhi said, pledging to stand in solidarity with the striking bank employees.
Sitharaman said privatization of state-run entities will let state-run banks access capital that they need. “The interest of the workers who have put in service over the decades will absolutely be protected whether it is salaries, scale or pension. It will all be taken care of,” the minister said.
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