Toward financing industry

FM COULD GIVE A FURTHER PUSH BY PLUGGING IMPORTANT GAP IN INSTITUTIONAL ARCHITECTURE WITH A NEW DFI

- NAGESH KUMAR SANTOSH DAS

RECOGNISING THE CRITICAL role of the manufacturing sector to realise the 2047 vision through the creation of decent jobs and incomes, the government has, over the past decade, taken several reforms and initiatives—including Make in India, the performance-linked incentive scheme, lowering of tax rates, and the announcement of anew manufacturing mission in the last Budget—to foster it.

While there are several notable successes, mobile handset making being the most visible one, private investments in the manufacturing sector continue to underperform.

Access to affordable credit, especially term lending, is critical for industrial development.That specialised development finance institutions (DFIs) have played an important role in key industrialised countries to address the term-lending needs of their industrial sectors—e.g. Germany (with KfW), Japan (JDB and IBJ), Brazil (BNDES), South Korea (KDB), and China (CDB) —is well documented.

In India, a trinity of DFIs—namely the Industrial Finance Corporation of India, the Industrial Development Bank of India, and the Industrial Credit and Investment Corporation of India—were established by the government in the early post-Independence period to support industrialisation, which they did. However, as part of the financial sector reforms in the 1990s, they were converted into commercial banks.