Here is an essay on ‘Industrial Finance Corporation of India’ for class 11 and 12. Find paragraphs, long and short essays on ‘Industrial Finance Corporation of India’ especially written for school and college students.
Essay Contents:
- Essay on the Introduction to Industrial Finance Corporation of India
- Essay on the Functions and Objectives of Industrial Finance Corporation
- Essay on the Financial Resources of Industrial Finance Corporation
- Essay on the Management and Procedure of Industrial Finance Corporation
- Essay on the Working of Industrial Finance Corporation
Essay # 1. Introduction to Industrial Finance Corporation of India:
In India the capital is very shy and the financiers feel that in case their hidden capital comes out, they may be penalised for evading taxes. Accordingly they are not prepared to come out with their hidden wealth. Moreover, those who were prepared to invest have very limited capacity and the amount spared is for long term investment and usually it becomes difficult for the individual or the organisation to withdraw the amount once spent.
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In India there is also no organised market which can always come forward with the money needed either for the expansion of an industry or to save that from financial difficulties or crisis. The result is that the industry gets into problems as soon as the question of raising additional funds arises.
Still another reason for setting up Industrial Finance Corporations in the country is that in India process of capital formation is slow. In case the present rate of slow capital formation is continued the result will be that the nation will take a very long time to become self-sufficient and have an honourable place and position in the family of nations.
Commercial banks, which could finance the projects, were not found interested to lock up heavy amounts in the industry and that too for a very long time and as such industry could not expect much for that source as well.
Setting Up the Corporation:
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Due to the difficulties enumerated above, it was found essential that the Government may set up industrial financial corporations in the country to solve long term financial problems of the industry. In fact attention of the government to this important aspect of the problem had been drawn by such important bodies as Industrial Commission (1916-18); the External Capital Committee (1925) and the Central Banking Enquiry Committee (1929-31), Second World War made it amply clear that there was dire need and necessity of setting up an industrial corporation. Accordingly on July, 1948, Industrial Finance Corporation of India was set up with the main object of making medium and long term credits available to the industrial concerns in India.
Essay # 2. Functions and Objectives of the Industrial Finance Corporation:
The Corporation is responsible for under-writing the shares, bonds, debentures of industrial enterprises provided these are disposed of by the Corporation within 7 years of the date of acquisition. It grants loans or advances to industrial undertakings on long term basis and also provides guarantees for these undertakings for the loan raised from the scheduled or States Co-operative Banks. It can also directly subscribe to stocks or shares of any industrial concern.
Objectives of the Corporation:
The Corporation was set up with the clear objective of providing finances, both medium and long term to large scale industries, engaged in manufacturing, preservation or processing of goods, mining, generation, distribution of electric power etc. Nationalised industries are also eligible for receiving financial assistance from the Corporation.
Essay # 3. Financial Resources of the Industrial Finance Corporation:
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The authorised share capital of the Corporation is Rs. 20 crores, which is divided into 40,000 shares of Rs. 500 each. The shares of the Corporation are guaranteed by the Government as to the repayment of principal as well as the dividend. The minimum rate of dividend that the Corporation can declare is 5%. On 30th June, 1974 the authorised capital of the Corporation stood at Rs. 20 crores and issued, subscribed and paid up capital stood at Rs. 10 crores. 50% shares were held by IDBI; 20% by the scheduled banks, 22% by Insurance Companies and remaining 8% by Cooperative Banks.
The Corporation has been empowered to borrow from the Reserve bank of India for a period not exceeding 90 days. It frequently, borrows from the Central Government and is also authorised to accept deposits from the public, State Government and local authorities.
Essay # 4. Management and Procedure of the Industrial Finance Corporation:
The management of the Corporation is carried out by a Board of Directors, consisting of 4 Directors to be nominated by the Development Bank, 2 by the Central Government and 6 to be elected by the shareholders. The Chairman of the Board is to be nominated by the Government of India.
Procedure for Granting Financial Assistance:
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While giving financial assistance, the Corporation is to take following facts into consideration:
1. That the industry is included in the priority category in the Five Year Plan.
2. That assistance will promote regional dispersal of industries.
3. That industrial cooperatives and new entrepreneurs will get encouragement.
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4. That due regard is being paid to the interests of the industry, commerce of the general Public.
5. That the cost proposed in the scheme is feasible.
6. That the industry can provide strong security.
7. That the industry is of national importance.
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8. That the product is greatly needed by the country.
9. That the concern has adequate supply of technical personnel and raw material; and also that it has competent management.
Each request received by the Corporation is properly examined by an advisory committee. The Board of Directors sanctions financial assistance on the recommendations of the advisory committee. After the loan has been sanctioned a letter of intent is issued in which main terms and conditions for the loan sanctioned are mentioned.
The party which is sanctioned loan is required to send regular progress report. Where the amount sanctioned is quite substantial, the Corporation has a right to nominate one representative of its own on the Board of Directors of that concern.
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Advisory Committees of the Corporation:
The Corporation has six important advisory committees, one each dealing with textile, sugar, chemicals, engineering, Jute and miscellaneous. An advisory committee is required to deal with a request falling within its scope.
Repayment of Loan:
The loans are granted against mortgage of fixed assets and not against raw material or finished goods. Usually a borrowing concern will not declare a dividend of more than 6%. Though the duration of loan is 25 years, yet the average period of repayment does not exceed 12 years. The repayment of loan starts after second or third year.
The Rate of Interest:
The effective rate of interest on rupee loan is 10.25% p.a. and 10.75% p.a. on sub loans in foreign currencies. The rate of interest charged from the industries located in the notified or less developed areas is 8.5% p.a.
Essay # 5. Working of the Industrial Finance Corporation:
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Working of the Corporation Upto July 1948, the net cumulative assistance sanctioned by the company was Rs.439.82 crores, whereas upto June 30, 1974 the total amount disbursed was Rs. 404 crores and the outstanding was 224 crores and net sanctions amounted to Rs. 474 crores. By 1978-79 the corporation sanctioned Rs. 907 crores and disbursed Rs. 676.13 crores.
As many as 671 industrial projects were financed by the Corporation. Assistance was sanctioned to 604 concerns. About 35% of the total assistance was for modernisation and diversification of industries; 42% of the total loans sanctioned went to Tamil Nadu, Maharashtra and West Bengal.
The Corporation sanctioned 367 applications for under-writing of equity and preference shares. Industry-wide distribution of net financial assistance, as on 30.6.73 shows that 22.7% went to sugar; 18.3% to chemical; textiles 12.0%; non-ferrous metals 7.3%; Paper and paper products 6.5% and so on. In Madhya Pradesh 137; in West Bengal 77; in Tamil Nadu 67; and in U.P. 53 projects were sanctioned.
Criticism of the Working of the Corporation:
1. It is said that financial policy of the Corporation is such that economic power gets concentrated only in few hands. This defect was also brought to light by Dutt Committee as well.
2. Due to nepotism and favoritism the Corporation has become a big financial racket and a handmaid of only few persons.
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3. Corporation has failed to develop industrially backward areas and the wealth is getting concentrated in such areas which are already industrially advanced.
4. Overhead charges incurred by the Corporation are very high, but on the other hand efficiency is low.
5. The procedure followed by the Corporation in granting the loans is very cumbersome and lengthy.
6. A very long time is taken by the Corporation for initiating action against industries which do not pay back the loan once taken.
7. The Corporation has ignored the interests of small scale and medium industries.
8. While granting loans consumer goods industries were more benefited as compared with basic and capital goods industries.
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9. Corporations did not properly supervise the industries granted loan. In many cases loans were given to profit earning industries which could otherwise raise loans.
10. There was no standardised from of application in which information about each industry could be sought on a uniform pattern.
Inspite of the shortcomings of the Corporation, it cannot be denied that it has helped in developing managerial talents. Not only this, but it has also helped in bringing members of different institutions closer and nearer to each other. It has also played an important role in so far as exchange of views and ideas was concerned.