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Centre to set up development finance entity

Topics Covered: Infrastructure.

Centre to set up development finance entity:


The government plans to set up a Development Finance Institution (DFI) in the next three to four months.

  • In her last Budget speech, Finance Minister Nirmala Sitharaman had proposed to set up DFIs for promoting infrastructure funding.

Need for:

  • To mobilise the ₹111 lakh crore required for funding of the ambitious national infrastructure pipeline.
  • To enhance credit rating of projects. It would fund projects where others are not willing to enter because of the risks involved.

DFIs in India- Historical background:

DFI would have a key developmental role apart from the financing role.

  • Prior to liberalisation, India had DFIs engaged in development of industry.
  • ICICI and IDBI, in their previous avatars, were DFIs.
  • The country’s oldest financial institution IFCI Ltd. too had acted as a DFI.

About national infrastructure pipeline:

In the budget speech of 2019-2020, Finance Minister announced an outlay of Rs 100 lakh Crore for infrastructure projects over the next 5 years.

  • NIP is a first-of-its-kind initiative to provide world-class infrastructure across the country and improve the quality of life for all citizens.
  • It will improve project preparation, attract investments (both domestic & foreign) into infrastructure, and will be crucial for attaining the target of becoming a $5 trillion economy by FY 2025.
  • Covers both economic and social infrastructure projects.

Measures needed:

  1. Investment needed: ₹111 lakh crore over the next five years (2020-2025) to build infrastructure projects and drive economic growth.
  2. Energy, roads, railways and urban projects are estimated to account for the bulk of projects (around 70%).
  3. The centre (39 percent) and state (40 percent) are expected to have an almost equal sharein implementing the projects, while the private sector has 21 percent share.
  4. Aggressive push towards asset sales.
  5. Monetisation of infrastructure assets.
  6. Strengthening the municipal bond market.


Prelims Link:

  1. What is NIP? When was it launched?
  2. Projects covered under NIP.
  3. Key recommendations made by task force headed by Atanu Chakraborty on NIP.
  4. Three committees proposed to be set up as per the recommendations made by Task Force.
  5. What is India Investment Grid?

Mains Link:

Discuss the significance and features of NIP.

Sources: the Hindu.