The finance ministry will soon introduce a Bill in Parliament to give effect to the new organization, for which the government has set aside 20,000 crores as equity support in the FY22 budget.
NEW DELHI: Finance Minister Nirmala Sitharaman declared on Wednesday that the Union cabinet had approved the establishment of a development finance institution (DFI) to fund infrastructure projects. The DFI would be entirely owned by the government at first, but Sitharaman told reporters after the cabinet meeting that the government’s shareholding would gradually be reduced to 26 percent. “We’re not thinking any lower than that.” The government set aside 20,000 crores in the FY22 budget to fund the institution, with the expectation that it will construct a lending portfolio of at least $5 trillion in three years. The finance ministry plans to introduce a bill in Parliament to create the new institution soon.
Sitharaman believes the DFI will be able to raise as much as $3 trillion in the next few years by leveraging its equity. She added that the government wants the organization to raise money from pension funds and sovereign wealth funds and that tax credits over the first ten years would help it keep fund expenses in check.
The DFI will be regulated by a competent board of directors who will be paid according to market conditions. The board of directors will have the authority to recruit and fire full-time directors.
According to Sitharaman, the new institution is part of the government’s efforts to develop infrastructure assets, for which a project pipeline worth 111 trillion dollars has been drawn up. According to the minister, the list includes up to 7,000 greenfield and brownfield projects. Debasish Panda, the secretary of state for financial services, said the new DFI would consider acquiring or integrating with another entity later, referring to India Infrastructure Finance Co. Ltd, a state-run infrastructure lender.
Sitharaman also discussed Congress leader Rahul Gandhi’s criticism of the government’s bank privatization program, saying the administration was well aware of workers’ concerns. Gandhi had previously tweeted that the government was “privatizing benefit and nationalizing loss,” in reference to the government’s decision to privatize two state-run banks. Gandhi claimed that selling public sector banks jeopardizes India’s financial stability, promising to stand in solidarity with the striking bank employees.
State-run banks would be able to access capital if state-run enterprises are privatized, according to Sitharaman. “Whether it is wages, scales, or pensions, the interests of the employees who have put in decades of service would be fully covered. The minister said, “It will all be settled and taken care of”, ensuring the workers that they would have the utmost comfort in the transition.
