Govt considers creating bank with $13.7 bn equity to lift India out of recession

As a measure to lift India out of recession, the Centre is hobnobbing with a proposal to create a bank to help fund port, road and power projects. The finance ministry has prepared a note for the Cabinet to discuss the proposal.

The new entity, likely to be part of the Budget announcement in February, may have an equity capital of Rs 1 trillion ($13.7 billion) it is understood. The existing India Infrastructure Finance, which has a Rs 2,000 crore corpus, will be merged with the bank.

Initially, the institution will be funded by the government which will later invite investors,. It could be on the lines of state-run National Investment and Infrastructure Fund which counts the Canada Pension Plan Investment Board, Asian Development Bank and Abu Dhabi Investment Authority among its investors.

India faces a challenge of boosting spending on productive assets that aid economic growth after being forced to direct the bulk of stimulus last year on the poor and the farmers to protect them from a pandemic-induced slowdown.

Attracting foreign investment is also crucial to meet the Prime Minister’s goal of spending $1.5 trillion on new roads, rail links and other infrastructure over the next five years as public finances deteriorate.

The government did pump in nearly Rs 1.7 trillion into public sector banks in the two years upto March 2020. But a widening budget deficit and weak revenue growth put a brake on any further re-capitalisation plans for the current financial year.