Rs 1 Lakh Crore Corpus to Incentivise R&D in Private Sector

What’s in today’s article?

• Why in News?
• Interim Union Budget 2024-25 Announcement - Rs 1 Lakh Crore Corpus to Incentivise R&D in Private Sector
• What is the National Bank for Financing Infrastructure and Development (NaBFID)?
• What is the National Investment and Infrastructure Fund (NIIF)?
• News Summary Regarding Govt’s Plan to Involve Financial Institutions for Operationalising Corpus Fund of Rs 1 Lakh Crore

Why in News?

• In a significant initiative to incentivise R&D in the private sector, the Finance Minister announced (in the Interim Union Budget 2024-25) the establishment of a financial corpus of Rs 1 lakh crore.
• The government is likely to involve financial institutions including the NaBFID, the NIIF, or the Small Industries Development Bank of India (SIDBI) for operationalising its Budget announcement.

Budget 2024-25 Announcement - Rs 1 Lakh Crore Corpus to Incentivise R&D in Private Sector

• It will provide low-cost or zero-interest loans for research and innovation and the private companies could avail of interest-free loans for up to 50 years (long-term financing or refinancing facility) through this new mechanism.
• This will encourage the private sector to scale up research and innovation significantly in sunrise domains.
• The new fund is in sync with the government efforts to encourage private sector involvement in research activities. For example, it had set up (last year) a National Research Foundation (NRF).

What is the National Bank for Financing Infrastructure and Development (NaBFID)?

• NaBFID is a specialised Development Finance Institution (DFI) in India aimed at supporting the country's infrastructure sector.
  • This is because the country's infrastructure sector can significantly gain from an enabling credit flow by means of attractive instruments and channelised investment.
• NaBFID was set up in 2021, by an Act of the Parliament (The National Bank for Financing Infrastructure and Development Act, 2021).
• Its objective is to
  • Address the gaps in long-term non-recourse finance for infrastructure development,
  • Strengthening the development of bonds and derivatives markets in India, and
  • Sustainably boosting the country’s economy.

What is the National Investment and Infrastructure Fund (NIIF)?

• NIIF is a government-backed quasi-sovereign wealth fund (government stake [49%] and rest held by foreign and domestic investors) established to provide long-term capital to the country’s infrastructure sector.
• It was set up in 2015 and registered with SEBI as a Category-II Alternative Investment Fund (AIF).

News Summary Regarding Govt’s Plan to Involve Financial Institutions for Operationalising Corpus Fund of Rs 1 Lakh Crore:

• The discussions for the research and innovation corpus have taken into account the view that the success rate for some of the projects may not be too high. It needs a long gestation to prove itself.
• The Centre is considering long-duration loans of up to 50 years with zero interest to the financial institution, as it does for capex for states.
  • The institution then, in turn, may consider providing credit at nil or concessional rate to another financial institution for refinancing or directly finance a commercial venture.
• A combination of one or more than one financial institution could be considered to provide long-term, concessional credit of Rs 1 lakh crore.
• This is commercial funding, for-commercial, for-profit ventures but the venture should be for an innovative, new technology to be proven.
• With this, the government aims to provide an enabling ecosystem for ventures in cutting-edge, developing technologies to take off.
• Inter-ministerial deliberations are taking place on the sectors to be considered under this funding.
• The amount of Rs 1 lakh crore will be spread out over the years for various projects, which may be decided by an expert committee.

Q.1. What are Development Finance Institutions (DFI)?

National and international development finance institutions (DFIs) are specialised development banks or subsidiaries set up to support private sector development in developing countries.

Q.2. What is the National Research Foundation (NRF)?

NRF will be established at a total estimated cost of ₹50,000 crore from 2023-28 to ensure that scientific research was conducted and funded equitably and greater participation from the private sector was forthcoming.

Source: Financial institutions likely to run corpus to fund hi-tech companies | HBL