The Lok Sabha on Tuesday 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 by the Rajya Sabha last Thursday.
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, infrastructure project financing have a long term risk. The credit costs are very high and the assessment of the long term success of the project is also on the ground which cannot be established. Each project may be a unique for itself and therefore the failure possibilities are also high.
“So, through the establishment of this organization, we think the National Infrastructure Pipeline (NIP) and the kind of funding required for it, this DFI will meet about 8-10% of what is expected. This institution is very unique since it meets the developmental and financial objectives," she said. “In this domestic institutional investors and retail investors will participate and money is expected to be raised from sovereign funds all over the world and any other big investor who wants to invest in India will be drawn towards this institution."
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.
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