The government may also announce some steps to revamp the bond market to finance infrastructure projects.
With infrastructure investment as the main plank on which the Modi government’s roadmap for post-COVID economic recovery is based, Finance Minister Nirmala Sitharaman may announce plans to set up a new development finance institution (DFI) in the Union Budget 2021-22, Moneycontrol has learnt.
A new DFI will be a part of the government’s push to invest more in infrastructure, and may be accompanied by measures to make access to infrastructure financing easier, a top government official said, on condition of anonymity.
Such a DFI is expected to be partially owned by the government and would fund infrastructure projects that banks and other lenders are wary of funding due to long gestation periods. It is a possibility that the India Infrastructure Finance Company (IIFCL) could be merged with the new DFI.
“Given the ongoing push for spending in infrastructure, India needs preferably a couple of development finance institutions. At least one of them could be announced in the budget,” the official told Moneycontrol.
Sitharaman and senior bureaucrats in the finance ministry have said the Centre will push infrastructure projects with a large multiplier effect, which will help achieve the twin aims of generating economic activity and creating jobs.
The official quoted above said there are three interconnected parts to this plan. The first is the Rs 109 lakh crore National Infrastructure Pipeline - at least 50 of the biggest projects from the pipeline are being expedited on a priority basis.
The second is the government’s own public spending and capital expenditure push. Sitharaman has publicly said any fiscal concerns will be kept aside and the budget will focus on public spending. As reported earlier, the Centre’s capex target in the upcoming budget could easily cross Rs 6-7 lakh crore.
The third will be a DFI. Its aim will be to provide funding for stuck or long-gestation projects. Like the existing National Investment and Infrastructure Fund (which is not a DFI), this part-federal owned DFI could raise the resources from domestic and major foreign investors like sovereign wealth and pension funds.
The government may also announce some steps to revamp the bond market to finance infrastructure projects. These steps would be aimed at providing more sources of funds for project and infrastructure financing along with a DFI.
It was earlier this fiscal year that the Centre dropped plans for an urban jobs guarantee scheme, akin to NREGA, and instead shifted its focus to infrastructure as a way of creating jobs.