India to set up Development Finance Institution |
India is likely to announce the creation of a mega Development Finance Institution (DFI) in India`s upcoming Union Budget 2021. The institution is expected to be created by merging some existing financial institutions to meet the long-term financing needs of new, stalled, and work-in-progress infrastructure projects worth over USD 1.36 trillion. A large DFI is necessary for rapid infrastructure development and is likely to be one of the key focus areas of Budget 2021-22. Infrastructure development will put India on a higher growth trajectory and impact every sector of the economy. Finance Minister Nirmala Sitharaman will on February 1 present the Budget, which is expected to focus on reviving the economy hit hard by the Covid-19 pandemic and the 68-day-long nationwide lockdown imposed from March 25 to check its spread. The Indian economy contracted by 23.9% in the quarter that ended on June 30. It recovered to contract by 7.5% in the three months that ended on September 30. According to the first advanced estimate by the National Statistical Office, GDP is expected to contract by 7.7% in fiscal 2020-21. India now sees the need for a mega DFI as commercial banks are not suited for long-term financing of infrastructure projects with long gestation periods. Such an institution could also help revive stalled projects worth at least USD 136.6 billion. The proposed mega DFI may include an existing financial institution and some existing funds. The government has already announced its ambitious USD 1.51 trillion National Infrastructure Pipeline, which will require debt financing of at least USD 820-956 billion in the next four-five years.
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