The Union Cabinet on Tuesday approved a Bill to set up a Development Finance Institution (DFI) to generate funds for investment in the infrastructure sector, as the government moves to increase spending on roads, ports and energy.

The proposed legislation will give effect to the Union Budget announcement made by Finance Minister Nirmala Sitharaman on February 1. The government has proposed Rs 20,000 crore to capitalise the institution. The proposed DFI will have 50 per cent non-official directors, Ms Sitharaman has added.

In her Budget 2019-20 speech, Ms Sitharaman had proposed a study for setting up DFIs for promoting infrastructure funding. About 7,000 projects have been identified under the National Infrastructure Pipeline (NIP) with a projected investment of a whopping Rs 111 lakh crore during 2020-25.

“During the Budget, we had mentioned that we would be setting up a national bank to fund infrastructure and developmental activities. Past attempts to have alternative investment funds were taken up, but for various reasons, we ended up with no bank which could take up long-term risk (which is very high) and fund development,” said Ms Sitharaman.

She added that the DFI would start with 100 per cent govt ownership, and the government’s stake would gradually be brought down to 26 per cent. “I expect the institution to raise up to Rs 3 trillion (Rs 3 lakh crore) in the next few years,” Ms Sitharaman told reporters after the Cabinet meeting on Tuesday. The DFI would seek to raise funds from global pension and insurance sectors for investment in new projects, carrying certain tax benefits, she added.