The Union Cabinet on Tuesday cleared a proposal to set up a Development Finance Institution (DFI) to generate funds for investment in the infrastructure sector.

"Union Cabinet has cleared the setting up of a Development Finance Institution, in acknowledgement of the realization that both development and financial objectives will matter for setting up a DFI," Finance Minister Nirmala Sitharaman said on Tuesday.

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.

The proposed DFI will have 50% non-official directors, Sitharaman added.

In her Budget 2019-20 speech, 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.