The Centre is planning to make an amendment in the income tax act to provide for a tax holiday of five years to private DFIs when the Finance Bill is taken up for passage in Parliament.
According to an exclusive report by Economic Times, the move is being made to allow DFIs to build up a robust balance sheet.
Apart from a five-year holiday, DFIs will get tax benefits for 10 years.
The Union Cabinet on Tuesday approved a bill to set up a DFI to raise long-term capital to fund infrastructure development, as the government has envisaged an investment of Rs 111 lakh crore by 2025.
The proposed legislation will give effect to the Budget announcement made by Finance Minister Nirmala Sitharaman on February 1. The government has proposed Rs 20,000 crore to capitalise the institution.
“I am happy today the Cabinet has cleared this bill through which we will have an institution and institutional arrangement that will help in raising long-term finance. The budget provides for the initial amount. I had announced it in the budget, saying capital infusion from our side would be about Rs 20,000 crore,” Sitharaman told reporters after the Cabinet meeting.
The minister further said she expects the proposed institution to raise up to Rs three lakh crore in the next few years because it will have access to the market funds, which are otherwise not available.
During the pre-liberalised era, India had DFIs which were primarily engaged in the development of industry in the country. ICICI and IDBI, in their previous avatars, were DFIs. Even the country’s oldest financial institution IFCI Ltd acted as a DFI.
In India, the first DFI was operationalised in 1948 with the setting up of the Industrial Finance Corporation (IFCI). Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955.