The Rs 2427.40 crore Sethusamudram Ship Canal Project off Tamil Nadu coast was on Thursday cleared by the Union Cabinet.
Announcing the Cabinet Committee on Economic Affairs decision, Finance Minister P Chidambaram said a Special Purpose Vehicle would be set up for the project.
Elaborating on the project, Chidambaram said it was a dream for over 100 years. With the cabinet nod, the government has fulfilled the Common Minimum Programme and budget promises, he said.
"It opens up a channel that will enable ships to India avoid going around Sri Lanka," he said adding the channel would bring benefits as was the case with Suez Canal and Panama Canal.
Apart from giving a "decent return", Chidambaram said the project has "tremendous externalities" in defence, security and anti-smuggling.
The project is estimated to cost Rs 2,427.40 crore, which is going to be funded by Centre, port trusts, Shipping Corporation of India, Dredging Corporation and others, apart from an initial public offer or private placement of Rs 226 crore.
The Dredging Corporation of India along with the port trusts of Chennai, Ennore, Vizag and Paradip will contribute Rs 30 crore each.