Rajya Sabha passes bill to establish a Development Finance Institution for long-term infra projects

The Rajya Shabha on Friday passed the National Bank for Financing Infrastructure and Development Bill, paving the way for the creation of a development finance institution (DFI) which will help fund long term infrastructure projects in the country. The union government tabled the Bill in the Lok Sabha on Monday and was approved on Tuesday.

The DFI will be initially wholly owned by the government, but its stake will be reduced to 26% later. The Union budget has allocated ₹20,000 crore to capitalize the DFI, which is expected to create a lending portfolio of at least ₹5 trillion in about three years. It will be based in Mumbai, with regional offices in different cities.

The new entity will help provide finance options for projects in the National Infrastructure Pipeline. This also comes at a time when the union government has decided substantially increase investment in infrastructure projects to help pull the economy out of the Covid-19 induced slowdown.

According to finance minister, Nirmala Sitharaman, the DFI is clearly the need of the hour and need for Indian’s growth story for the next twenty five years and an institution with that kind of an architecture is needed which has the government backing it at the same time being able to face the competition in the market.

“In 2019, it was announced that an investment of ₹100 lakh crore will be made in infrastructure over the next five years. By that year end we came up with the National Infrastructure Pipeline which had 6000 projects and now it’s more than 7000 projects, all of which is related to infrastructure,” added Sithararman in her speech in the upper house.

She further added that the fact that development finance is highly risky and it is long term in terms of gestation and requires higher credit costs to be calculated. Therefore the failure possibilities also become a part of the calculation. “To create an ecosystem for Indian investments, to be able to build infrastructure, the ecosystem will have to have some kind of institutional structure.”

As part of the National Infrastructure Pipeline, the union government plans to invest ₹111 trillion in 7671 infrastructure projects in the next four years to 2024.

The Narendra Modi led government, in the finance budget, decided to increase spending on infrastructure projects in FY 22. Capital expenditure of central government is projected to touch ₹5.54 trillion next fiscal, while it is likely to close at ₹4.4 trillion in the current one, according to the budget announcements.