In LiveMint, Niranjan Rajadhyaksha looks at the role that Development Finance Institutions played in India, and the challenges to keep in mind for a new strategy.
"Are development finance institutions (DFIs) about to make a comeback in the Indian financial landscape? The first hint was offered by finance minister Nirmala Sitharaman in her July 2019 budget speech. She spoke about the need for a specialist DFI to channel funds to the ₹1 trillion of infrastructure projects planned over the next five years. Not much happened after that. Then K.V. Kamath, who led the successful transition of the erstwhile ICICI from a development bank to a universal one, said in an interview to Bloomberg Quint in early December that India may need to consider a new DFI.
In an article published in The Economic Weekly in February 1954, when the Indian government had begun negotiations with its US counterpart as well as the World Bank to set up a new industrial lender, H.T. Parekh wrote that the new corporation should provide equity capital rather than act as a lender. “In fact, it could best function as an investment trust specialising in making available to private enterprise a part of the risk capital required… It is easier for an industrial concern to raise loan capital than to raise equity capital." Much has changed since then, but his words remind us that several strategic issues need to be dealt with if the government is thinking of a DFI 2.0."
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