Yet another bank for Infra development

The Bill assures a ten-year tax break as an incentive for long term investments in the DFI. In the estimation of the Central government, this initiative will cause a flow of Rs 111 lakh crore as an investment in 7671 infrastructure projects.

Hyderabad:Under unavoidable circumstances, the Central government is again embracing the idea of establishing a development bank and financial institution. Similar institutions were closed down in the country a few years ago.

Again the stage is being set for the creation of Development Finance Institution (DFI), which is claimed, will be helpful for the creation of infrastructure and also for the recovery of bad debts.

In her budget speech, the Union Finance Minister Nirmala Sitaraman mentioned the need to launch a DFI and before long the Central Cabinet accepted the proposal.

Read:|DFI will arrange Rs 10-12 lakh crore for infrastructure funding: FM

The bill approved by the Cabinet claims that the DFI will breath new life into the national economy shrunken to unexpected levels due to the Covid crisis.

Development banks of respective countries played an important role in the economic resurgence of countries like China, Brazil, Singapore, South Korea, Japan and Germany.

The Central government believes that the bank will help overcome complexities and challenges in India as well.

The era of DFIs in India came to an end with the nullification of the Infrastructure Development Bank of India Act 1964.

The success of the newly proposed development bank will heavily depend on the precautions to be taken to prevent past mistakes and bitter experiences.

The understanding that development banks can speed up extensive industrialisation took roots in the country long ago.

As a result institutions like IFCI (1948), ICICI (1955) and IDBI (1964) at the national level and SFC and SIDC at the State level came into being. These institutions could not act with autonomy as the government was their prime financial source.

Read:|Cabinet clears Development Finance Institution with capital infusion of Rs 20000 crore

Political intervention progressively degenerated their condition. Their profitability and progress were seriously impeded due to irresponsible policy decisions. Their piled up NPAs exceeded the bad debts of other commercial banks.

Following a high-level committee’s recommendation to extend the power of long term loan disbursal to other commercial banks also the monopoly of infrastructure development banks on long term loan disbursal came to an end.

Thereafter extensive reforms also took place on this front. Institutions like ICICI transformed themselves into commercial banks.

Subsequently, several smaller banks came together to become conglomerates that extended long term loans.

However, due to the delay in land acquisitions, the infrastructure development institutions suffered a setback. Their NPAs mounted to greater levels.

The proposal to set up a DFI came back into the scene with the ostensible objective of improving the country’s infrastructure situation.

The bill gives no scope to challenge any decisions taken by the development bank.

The persons responsible cannot be questioned in any manner, says the Bill. The bill claims to be providing unassailability to the DFI.

The Center should keep in mind that the previous development banks sank because of the indiscriminate bias in granting loans.

Measures that enable accountability at every step alone can help the development bank turn into a great financial resource for genuine development projects.

Read:|Development Finance Institution will speed-up infra building