Setting up of financial institutions to fund infrastructure projects is one of the common threads between Finance Minister Nirmala Sitharaman and former Finance Minister P. Chidambaram.
It was in 1996 that the then Finance Minister P. Chidambaram from Tamil Nadu during his budget speech announced the setting up of the Infrastructure Development Finance Company Ltd (IDFC) to fund the infrastructure projects.
“Infrastructure needs long-term finance, typically 15-20 year financial instruments. However, it has not been possible to float such instruments in the Indian market so far. Hence, I am proposing the establishment of an Infrastructure Development Finance Company (IDFC),” Chidambaram had then said.
“This company will be incorporated with an authorised share capital of Rs 5,000 crore,” he had said.
Among other things, the IDFC will act as a direct lender, as a refinancing institution and as a provider of financial guarantees, Chidambaram said.
The IDFC was incorporated as a non-banking finance company (NBFC) with its registered office in Chennai. That was the first infrastructure lender to be based in Chennai.
Twenty five years later, in 2021 Sitharaman, another Tamilian Finance Minister by birth, in her budget speech announced the setting up of a development finance institution (DFI) to finance infrastructure projects.
“Infrastructure needs long term debt financing. A professionally managed Development Financial Institution (DFI) is necessary to act as a provider, enabler and catalyst for infrastructure financing. Accordingly, I shall introduce a Bill to set up a DFI. I have provided a sum of Rs 20,000 crores to capitalise this institution. The ambition is to have a lending portfolio of at least Rs 5 lakh crores for this DFI in three years time,” Sitharaman said.
The Union Cabinet on Tuesday cleared the budgetary proposal to set up a dedicated infrastructure lender.
The DFI will be formed with a seed capital of Rs 20,000 crore. It will be managed by a professional board and is expected to attract capital from the market, Sitharaman told the media after the cabinet meeting.
(Venkatachari Jagannathan can be contacted at firstname.lastname@example.org)