Finance Minister Nirmala Sitharaman and I&B Minister Prakash Javadekar briefing the media after the Cabinet meeting on Tuesday – Kamal Narang
The new institution expected to bring in long-term capital: FM
The Cabinet on Tuesday approved bringing a Bill to set up a development financial institution.
The DFI will get ₹20,000 crore as equity capital from the government. “With this kind of initial capital, I expect the institution to use it as lever to raise up to ₹ 3-lakh crore in the next few years,” she said, adding that it can access from the market funds otherwise not available.
In Budget 2021-22, the Finance Minister had announced the setting up of a DFI. “Infrastructure needs long-term debt financing. A professionally managed DFI is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, I shall introduce a Bill to set up a DFI,” she had proposed.
The institution will have a board with at least 50 per cent non-official directors. The chairman will be a person of repute in the field. “Emoluments will be as per the market standards. Higher age limit and longer tenure for MDs to be put in place,” she said, adding that its board can take call on merging existing institution like IIFCL. Sitharaman also mentioned that initially the company will be 100 per cent government owned. However, over a period, the government will gradually lower its equity. “In any case, the government’s shareholding will not be lower than 26 per cent,” she said.
The Minister said that because of tax benefits. and tweaks to the Indian Stamp Act. , “we expect big pension and sovereign funds will come. The government is also planning to give it a certain security because of which the cost of funds will come down,” she said adding that there will be a positive impact on the bond market.
Later, a senior official said the DFI will not issue tax-free bonds but compensate the tax outgo of the institutions putting money in it. A grant of ₹5,000 crore is to be provided. The government will guarantee any overseas borrowing, and compensate the guarantee fee.
The funds raised by the DFI will be used in infrastructure projects. The government has prepared the National Infrastructure Pipeline with an investment of ₹111-lakh crore.