The Hindu : Strengthen DFIs for sustained economic growth, says survey

Online edition of India's National Newspaper
Friday, Mar 26, 2004

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Strengthen DFIs for sustained economic growth, says survey

By Our Special Correspondent

NEW DELHI, MARCH 25. The Federation of Indian Chambers of Commerce and Industry (FICCI) today asked the Government to make a portion of long-term funds available to the development financial institutions (DFI) to enable them to meet the financial requirement of a large number of mid-sized Indian companies looking for fresh investments.

Revealing the findings of a survey on meeting the needs of the Indian industry, the FICCI President, Y. K. Modi, said there were thousands of mid-sized Indian companies today looking for fresh investments for which they needed long-term competitive finance.

"If a portion of long-term funds such as Provident Fund/Pension/Gratuity fund and Postal Savings fund is made available to the DFIs it will facilitate corporate financing better," he said commending the steps to revive and strengthen these institutions.

The FICCI survey on `Long-term financing needs of the Indian industry and the role of DFIs' also says that the long-term debt market should be developed so that in future the market itself is in a position to support these institutions. The DFIs should also be given tax concessions with respect to their bond issues and be exempted from tax on their profits, it says.

Eighty-nine per cent of the respondents from 248 companies cutting across various sectors said that they had plans for fresh investments in the near future which, the survey says, is an indicator that the economy today stands at the beginning of a new investment cycle.

Members have voiced their preference for debt financing for undertaking the proposed investments. While 20 per cent of the respondents would finance 50-60 per cent of their total project cost through debt, 22 per cent would use debt sources to provide for 60-70 per cent of their projected expenditures. Another 24 per cent said that they would avail themselves of the debt sources to the tune of 70-80 per cent of their planned investments.

On the various sources of debt finance, term loans from banks found favour with 59 per cent of the respondents even as another 46 per cent said that they would also avail of term loans from financial institutions.

Voicing concern of the low levels of activity of the DFIs with 73 per cent observing that these instructions have not been active in the last five years, a whopping 80 per cent of the respondents have strongly called for revival and strengthening of DFIs for supporting the investment programmes of the Indian industry.

However the industry appeared divided in its opinion on the emergence of alternative structures for raising debt finance. While 52 per cent have said that a few options like ECBs, FCNR (B) loans and issuance of commercial paper have emerged in the last five years, the remaining 48 per cent feel that besides DFIs and banks there are no other alternative sources that they can tap for debt financing.

The participants in the survey also expressed apprehensions about the role universal banks can play with 40 per cent saying that these institutions are not of adequate help in the case of project financing and only 20 per cent find them useful for the said purpose.

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