India is a developing economy. But the progress of industry is very slow. This is mainly due to the non-availability of finance. Hence, the supply of adequate finance is required for the development of industries in India. Our National Government is fully aware of the said problem. Accordingly, various agencies have been set up for the supply of industrial finance to the public and private limited companies. One such agency is the Industrial Finance Corporation.
Establishment of Industrial Finance Corporation of India
In 1948, the Government of India set up Industrial Finance Corporation of India (I.F.C.I) with a view of providing medium and long term finance to industries.
The Industrial Finance Corporation started with the authorized share capital of Rs. 10 crores divided into 20,000 share of Rs. 5,000 each. It can also issue bonds up to five times of its paid up capital. The Corporation is authorized to borrow from the Reserve Bank of India, the Central Government and the World Bank, in order to increase its resources.
The Industrial Financial Corporation of India is authorized to grant loans to industrial companies repayable with twenty five years grants, loans in foreign currency to certain industries, under write bonds, shares and debentures etc. provided they are disposed of by the I.F.C.I. within seven years, guarantee deferred payments by importers of capital goods of foreign manufacturers, accept deposit from the local institution, guarantee loans from any bank of a foreign country, subscribe shares of industrial companies.
The corporation’s role now extends to the entire industrial spectrum in the country. The facilities and services being provided by IFCI can be deemed to fall broadly under (a) project finance, (b) financial services and (c) promotional services.
The Industrial Finance Corporation has played a vital role in our industrial economy. Since its inception, the Corporation has provided financial assistance to the underdeveloped industrial concerns. The Corporation has the power to examine the financial aspects of the industrial companies and give valuable advice to the management for improving their schemes.
I.F.C.I. has launched promotional schemes like
- Subsidy in interest for women entrepreneurs
- Schemes for modernization of small scale industrial units,
- Consultancy fee subsidy for providing marketing assistance,
- Pollution control schemes etc.
It is also diversifying its activities in the field of merchant banking to render other financial services like project counselling, sanction of loans etc. I.F.C.I. is also showing concern for the development of backward districts of the country.
But the Industrial Finance Corporation is not free from criticisms.
- The Corporation has mainly favored the big companies and has neglected small and medium concerns.
- The Industrial Finance Corporation is not authorized to sanction more than two crores of rupees to many industrial concerns.
- The Corporation may grant advances or loans only if the Central Government is ready to repay the principal with interest.
- The I.F.C.I. lack administrative efficiency. The members are not properly trained and acquainted with the problems of industrial finance.
- The Corporation has a bias toward the more developed industrial companies.
- It has been reported that the I.F.C.I. unusually delays in granting loans. It is changed with nepotism and favouritism.
Thus it has been suggested that steps should be taken to improve the administrative machinery of the Corporation and also to increase its financial resources. The Industrial Finance Corporation has to see that all States in India receive financial aid from it on a sound economic basis.