Budget 2021: Boost for infrastructure sector as FM sets up DFI; allows FPI investment in REITs

Union Budget 2021: With an aim to improve the funding for the country’s infrastructure sector, Finance Minister Nirmala Sitharaman today announced the setting up of a Development Finance Institution (DFI). “Infrastructure needs long-term debt financing. A professionally managed Development Financial Institution is necessary to act as a provider, enabler, and catalyst for infrastructure financing,” the Finance Minister said today in the Parliament. Additionally, the minister announced that Foreign Portfolio Investors (FPI) will now be enabled to debt finance REITs and InvITs after necessary amendments to the law.

Union Budget has allocated Rs 20,000 crore for the DFI, with an ambition for the lender is to have a portfolio of Rs 5 lakh crore within three years time. The Finance Minister said that the move will augment fund flows for the real estate and infrastructure sector. “Proposal for the setting of a separate DFI exclusively for funding infra projects a massive program for monetization of completed/ running projects which will help in creating required resources through the instruments like INVITs, which functions in a manner similar to the mutual funds,” said Jyoti Prakash Gadia, Managing Director, Resurgent India.

The boost to the Infrastructure sector was anticipated ahead of the Union Budget and does play a key role in reviving demand in the economy. “Infrastructure growth in India is longing for a mega DFI with a bigger risk appetite, that will provide the much needed long term financing to new as well as stalled projects with long gestation periods, and will ease out the burden of commercial banks,” said Ajay Sawhney, Partner, Cyril Amarchand Mangaldas.

The move to enable FPIs to debt finance REITs and InvIT are likely to assist cash stressed real estate sector, according to Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP. Investment into the infrastructure sector has a multiplier effect, that further boosts allied sectors and helps aid overall growth in the economy. 

“Long-awaited ask of aligning SEBI FPI regulations with SEBI InvIt and REITs regulations finally announced. Debt capital to now flow easily from FPIs including ESR focussed funds and financial institutions,” said Shagoofa Rashid Khan, Partner and Head – Project, Investment, and Advisory Cyril Amarchand Mangaldas.