India to set up development finance institution to fund infra projects

Context

India's cabinet approved the establishment of a development financial institution (DFI) with a fund worth 200 billion rupees ($2.8 billion) to boost investment in infrastructure projects.

About the Development Finance Institution (DFI)

• The Development Finance Institution (DFI) are organizations that are either owned by the government or by charitable institutions to finance infrastructure projects that are of national importance but may or may not meet commercial return standards.
• Types of Finances by DFIs: 
  • Medium(1-5 years)
  • Long term(>5 years)
• DFIs Categories:
  • National Development Banks such as IDBI, SIDBI, ICICI, IFCI, IRBI, and IDFC.
  • Sector-specific financial institutions such as TFCI, EXIM Bank, NABARD, HDFC, and NHB.
  • Investment Institutionssuch as LIC, GIC, and UTI.
  • State-level institutions such as State Finance Corporations and SIDCs. 

Significance of the initiative

• Fundraising:The DFI would seek to raise funds from the global pension and insurance sectors.
• Long-term financing: It will help in raising funds for the length which is a must for the infrastructure sector.
• Tax benefits: It will help for investment in new projects with certain tax benefits.
• Boost GDP: It will help to cut logistics costs of GDP.
• Saving of companies cost: It will help hundreds of companies save on transport costs and boost sales once demand picks up.