The Hindu Business Line : Long-term funds must to help revive DFIs, says FICCI

IF a portion of long-term funds such as provident fund, pension, gratuity and postal savings fund is made available to Development Financial Institutions (DFIs) it will facilitate corporate financing better.

This has emerged as one of the main suggestions, to help revive DFIs, in a survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) recently on `Long-term financing needs of the Indian industry and the role of DFIs'.

Besides this, the long-term debt market should be developed so that in the future the market itself is in a position to support these institutions.

DFIs should also be given tax concessions with respect to their bond issues and be exempted from tax on their profits. Sharing similar views, the FICCI President, Mr Y.K. Modi stated, "There are 1,000s of mid-sized Indian companies today looking for fresh investments for which they need long-term competitive finance."

The survey elicited response from 248 companies cutting across various sectors.

According to the survey, 89 per cent of the respondents said that they have plans for fresh investments in near future — 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.

While 46 per cent said that they would also avail themselves of term loans from financial institutions. The low levels of activity of DFIs have given rise to concerns among the respondents with 73 per cent saying that they have not been very active in the last five years.

Consequently, 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.

The industry was, however, divided in its opinion on the emergence of alternative structures for raising debt finance.

Revival and strengthening of DFIs would go a long way in ensuring that fresh investments in the economy are not hampered. This would also lead to sustained economic growth and spur employment, the survey said.

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