NEW DELHI:

The Union cabinet on Tuesday approved a development financial institution(DFI) to boost investment in infrastructure projects, finance minister said.

“I expect the institution to raise up to 3 trillion rupees ($41.36 billion) in the next few years,” Nirmala Sitharaman, India’s finance minister told reporters, after a cabinet meeting chaired by Prime Minister Narendra Modi.

In her annual budget for 2021/22 presented on Feb. 1, Sitharaman had proposed to allocate Rs 200 billion for setting up a development finance institution, with a view to partly fund proposed $1.5 trillion in infrastructure projects over the next few years.The Union Cabinet on Tuesday approved a bill to set up a DFI to generate funds for investment in the infrastructure sector. The proposed legislation will give effect to the Budget announcement made bySitharaman on February 1. The government has proposed Rs 20,000 crore to capitalise the institution.

 "The Cabinet has cleared this bill, through which we will have an institution and institutional arrangement, which will help in increasing long term funds," she said after the meeting of the Cabinet.
 
Sitharaman added. In her Budget 2019-20 speech, Sitharaman had proposed a study for setting up DFIs for promoting infrastructure funding. About 7,000 projects have been identified under the National Infrastructure Pipeline (NIP) with a projected investment of a whopping Rs 111 lakh crore during 2020-25.

The DFI will also have some tax benefits, being given for a 10-year long period. The Indian Stamp Act too is being amended.

“With this, we hope to be able to attract big pension funds and sovereign funds,'' said Sitharaman said 

Government is also planning to issue some securities to Development Finance Institution (DFI), by which cost of funds will come down. All this will help DFI leverage initial capital and draw funds from various sources and will also have positive impact on bond market in India, she commented..

The proposed DFI will have 50 per cent non-official directors and will have power to appoint & remove whole-time Directors

The emoluments will be such as to attract the best of talent

“We are looking at higher age limit & longer tenure for MD and DMDs so as to raise to expectations of the marketGovernment is also planning to issue some securities to Development Finance Institution (DFI), by which cost of funds will come down. All this will help DFI leverage initial capital and draw funds from various sources; will also have positive impact on bond market in India,' said Sitharaman.

On privitisation of banks, she said, We have announced a Public Enterprise Policy, where we have identified 4 areas where public sector presence will be there, in this, financial sector too is there.So, not all banks are going to be privatized.''

“We have quite a few banks, but we need banks which will be able to scale up. We need many more banks of the size of SBI, to meet the aspirational needs of the country,'' she said

Even for those banks which are likely to be privatized, the privatized institutions too will continue to function after privatization, the interests of the staff will be protected, she assured..

“Interests of workers of banks which are likely to be privatized will absolutely be protected, whether their salaries or scale or pension, all will be taken care of,'' said Sitharaman.