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Establishment of Development Finance Institute (DFI) to address the issue of long-term infrastructure financing in the entire infrastructure sector will boost the economic growth of the nation and help in coming out of Covid-19 shock. Infrastructure finance has always been an issue in the country, it seemed even more difficult as the country was about to enter a phase of economic slowdown due to pandemic. Huge capital requirements and long gestation period are the primary reasons behind it.

DFI will act as a provider, and catalyst for infrastructure financing in the country, especially long term. The base capital for the DFI has been set up at INR 20000 crore and has a lending target of INR 5 Lakh crore for the next 5 years.

After the collapse of the financing institute IL&FS, the need for a professionally managed and government-backed financial institution dedicated to infrastructure was felt. To overcome the slowdown due to pandemic, infrastructure spending came up as the most viable means of generating employment, circulating cash in the economy, and bring the economy back to the growth path. However, infrastructure spending itself is not easy. It requires a large amount of finance as well as institutions to mobilize this finance. This further emphasized the need of setting up a DFI. The institutes set up earlier lacked clear focus and goals. The result was that these institutes gradually converted into commercial banks. ICICI and IDBI are examples of institutes turning into commercial banks which are unable to take long-term financing risks required for infrastructure projects. The uniqueness of the DFI lies in its clear focus and well-defined targets.

The DFI will have its focus on the National Infrastructure Pipeline (NIP), which itself is a unique initiative to provide world-class infrastructure to even the remotest parts of the country. It will focus on mobilizing INR 111 lakh crore required to complete 7000 infrastructure projects identified under the NIP. Besides having the government’s backing, the institute will have direct access to the funding facilities by the RBI. It will also be able to borrow money from the RBI with help of other instruments like bills of exchange, promissory notes, security of stocks etc. Therefore, it can be expected that the DFI will have a perennial and economical source of funds for all its requirements. Initially, the DFI will be a fully government-owned entity. Gradually the government will reduce its share and allow other parties to join hands in the initiative. However, the government’s share will never go below 26 percent.

A country where existing infrastructure is under tremendous pressure and new infrastructure is required for both social and economic development, a DFI dedicated to infrastructure financing was the need of the hour. By virtue of government backing, professional management, and well-defined targets, the DFI is expected to revolutionize long-term infrastructure financing in the country.

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