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Union Cabinet clears proposal to set up Development Finance Institution

The government will initially infuse Rs 20,000 crore in the DFI, Sitharaman said while briefing media on Cabinet decisions, adding that the government plans to raise up to Rs 3 lakh crore in the next few years.

twitter-logoBusinessToday.In | March 16, 2021 | Updated 16:31 IST
Union Cabinet clears proposal to set up Development Finance Institution
The DFI will start with 100 per cent ownership of Government of India, and gradually government's ownership will be brought down to 26 per cent, Finance Minister Sitharaman said.

The Union Cabinet on Tuesday cleared the proposal to set up a Development Finance Institution (DFI).

Finance Minister Nirmala Sitharaman had announced in the Budget that the government will set up DFI to fund long-term infrastructure projects in the country.

The government will initially infuse Rs 20,000 crore in the DFI, Sitharaman said while briefing media on Cabinet decisions, adding that the government plans to raise up to Rs 3 lakh crore in the next few years. An additional grant of Rs 5,000 crore will also be given and there will be additional increments for the grant over the years.

The government will provide tax exemptions for a 10-year period and also amend the Indian Stamp Act to attract global pension funds and sovereign funds to invest in DFI.

The government is also planning to give certain securities which will also bring down the cost of funds, she said. "Because of this (DFI), I think there will be a positive impact on the bond market in India," Sitharaman said.

The DFI will start with 100 per cent ownership of Government of India, and gradually government's ownership will be brought down to 26 per cent, the finance minister said in reply to a question.

"It (DFI) will have a professional board and at least 50 per cent of them will be non-official directors. Persons of eminence are also envisaged to be on the board and I would think the chairpersonship will also be of some eminent person...we are making sure that this organisation will have people of such heft and professional standards...," the finance minister said on the composition of DFI's board.

The power of the board will also be clearly drawn so that it can appoint and remove whole-time directors, she said, adding that the government is looking at a completely professional set up. The emoluments will also be market driven to attract the best talent.

The government plans to take up projects worth about Rs 111 lakh crore under the National Infrastructure Pipeline. While several attempts have also been made in the past to create a DFI, for different reasons there is currently no bank or institution which can take long-term risk and fund development projects, Sitharaman said.

There are over 6,000 brownfield and greenfield projects which need to be funded, she said.

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