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The Cabinet nod for an infrastructure-focused development finance institution (DFI) is noteworthy, given lacklustre credit growth in the backdrop of stepped up capital expenditure in the budget. But it would surely make better sense to repurpose an operational DFI, such as IFCI or IIFL, to boost project funding, with special focus on project vetting. Reports say that the National Bank for Financing Infrastructure and Development (NaBFID) is to be set up with a corpus of Rs 20,000 crore and an initial grant of Rs 5,000 crore from the Centre.
The National Investment and Infrastructure Fund (NIIF) has a corpus of $4.3 billion, is functional and can well provide arm’s-length funding for long-gestation projects. India Infrastructure Finance Company Ltd (IIFCL), agovernment enterprise, could reportedly be merged with the new DFI.
The former can be quickly put to task and instructed to hit the ground running; the value of speed in this time of rising Covid infections is enormous and we simply cannot afford delays and dither that would surely afflict a greenfield institution. Credit growth in India today is in the low single digits; it would be a tall order, indeed, to policy-induce double-digit economic growth without requisite credit availability, especially long-term funds.
Hence the pressing need for focused funding of infrastructural investments by existing DFIs, preferably in a consortium approach, so as to transparently boost project finance. Ideally, of course, we do need a vibrant corporate bond market together with attendant risk-mitigation instruments to hedge credit, currency and interest-rate risks. But given the absence of an active and liquid corporate bond market, existing DFIs should fit the bill for now.
This piece appeared as an editorial opinion in the print edition of The Economic Times.