Union budget is likely to announce the Development Finance Institution

Union budget is likely to announce the Development Finance Institution

For the economic development of the country, a mega Development Finance Institution (DFI) is being created. The announcement of this DFI is expected in the Union Budget 2021-22. Some existing financial institutions will be merged to form DFI. It will help the long-term financing needs of new, stalled, and work-in-progress infrastructure projects worth over ₹100 lakh crore.

For rapid infrastructure development in the country a large DFI is very necessary. Hence this is expected to be one of the key focus areas of this year’s budget. India’s overall growth can improve, if the country’s infrastructure is developed. This will not only elevate the nation’s growth trajectory, but also impact every single sector of the economy.

On 1st February, Union finance minister Nirmala Sitharaman will present the budget 2021-2022. The pandemic and 68-day long nationwide lockdown was a serious hit for the country’s economy. So it is expected that this year’s budget will be focussing on ways to revive the economy.

People aware of the matter said that there is a need for a mega DFI as commercial banks are not suited for long-term financing of infrastructure projects with long gestation periods. They added that apart from funding new projects, such an institution could also help revive stalled projects worth at least ₹10 lakh crores.

One of the persons said, “Most of these projects are languishing because of fund crunch.”

Requesting anonymity, one of the people cited above said, “It will meet the long-term financing need of these projects.” The person further said, “The government has already announced its ambitious ₹111 lakh crore National Infrastructure Pipeline, which will require debt financing of at least ₹60-70 lakh crore in the next four-five years.”

On November 6, Government had set up ₹25,000 crore, Special Window for Affordable and Mid-Income Housing Fund 2019. This was done to help stalled projects in the real estate sector.

Moreover, on November 25, the Cabinet approved a ₹6,000 crore capital infusion in the government-backed entity of National Investment and Infrastructure Fund. It was created to provide long-term capital to the infrastructure sector.

This shows that government has several funds to finance infrastructure and revive stressed projects, but the idea of having a mega DFI is to create a competitive financing option.

According to the first advanced estimate by the National Statistical Office, GDP is expected to contract by 7.7% in fiscal 2020-21.




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