www SUnwpnm Sories: Number Eightoen P.D. Ojha and V.V. Bhaft Patten of Income Distribution in India: 1 953-55 to 1 963-65 W.V. BlU A Decade of Performance of Industral Development Bank of India Reprinted from Sankhyi 36 (1974) and Commerce [Bombayl 1974 Annual Number Sankhya : Thb Indian Journal of Statietica 1974, Volume Sq, Series C, Pts. 2 & 4, pp. 163-166. PATTERN OF INCOME DISTRIBUTION IN INDIA: 1953-55 TO 1963-65 By P. D. OJHA and. V. V. BHATT* Reserve Bannk of India and :Economic Development Institute, World B%nk SUMMARY. An attempt is made in this paper to estimate the income distribution pattern in India during 1963-65 by u3ing broadlly the same methodology as was used earlier to estimate the pattern during the period [953-551,2 with some modifications as are called for in the light of the available data. 1. METHODOLOG#Y AND HSTIMATION PROOEDURES In the earlier studies, 'household' was taken as an income-recipient unit. For this purpose, per capita expenditure brackets as given by the National Sample Survey (NSS) were converted into per household expenditure bra- ckets. This procedure is not analytically sound as household size varies with expenditure brackets. The error involved is unlikely to be large. However, for the sake of accuracy, since the NSS data are given in the form of pet capita expenditure brackets, 'individual' is taken as the income-recipient unit for this study. The estimates are made for two periods; period I covers years 1953-54 and 1954-55, while period II refers to years 1963-64 and 1964-65. The NSS data are available in the published form only up 1964-65. Since year to year fluctuations in the NSS data do not seem to be plausible, years have been grouped. in such a way as to give a reliable picture. The 1951 Census figures are taken for population and the population estimates for 1953-64 and 1954-55 are made on the basis of an annual growth rate of 2 per cent. The 1963-64 and 1964-65 population estimates are derived from the observed annual growth rate of 2.3 per cent during 1961-71 on the basis of census estimates. The breakdown of the total population into rural and uirban population is estimated on the basis of the urbarn population proportions as presenited in *Authors aeknowledge with gratitude the valuable assiitanoe they recoived from Mr. M, V. Raghavachari of the Reserve Bank of India. 'P. D. Ojha and V. V, Bliatt-Pattern of Incomo Di.stribution in an Under-Devolopod Eoo. non..I: A Case Study of India: American Economic R1rei',ru Soptomber 1214 and December 1965. 2P. D. Oiba and V. V. Bhnt.t-Dist.ri1)ut.ion of Incoxe in the Indian Ecoliomy: 1953-54 to 1965-57-Reserve Barnk of India zdltetzn, Septomnbor 1962, 164 P. D. OJHA AND V. V. BHIATT the Ministry of Labour and Employment Study.3 For the years 1963-64 and 1964-65 the urbaln population is estimated on the basis of the rate of growth observed during 1961-71. Rural population is derived as a residual by subtracting urban population from total population. The urban and rural saving estimates are based on the Reserve Bank studies.4'5 It is assumed that the top expenditure bracket is responsible for th, total net saving and the brackets saving by some groups are offset by dissaving by the other groups.6 It is difficult to imagine oontinuous dissaving by any one group taken as a whole year after year. Anvway, in the absence of any reliable data, this assumption is made as a, working hypothesis. 2. CHANGES IN T1IE PATTERN OF INCOME DISTRIBUTION SOMIE BROAD RESULTS Income distribution patterns during the two periods are shown in Tables 1, 2, 3, and 4. The broad conclusions that emerge from these estimates are the following: TABLE 1. DISTRIBUTION OF PERSONAL INCOMIE (BY INCOME GROUP OF INDIVIDUALS) (per cent) period I period II income group - (decile) rural urban all-India rural urban all-India 1st 4 2 3 3 2 2 2nd 4 3 4 4 4 3 3rd 5 4 5 0 4 6 4th 5 5 5 7 5 6 5th 8 0 6 $ 6 6 Gth 8 7 8 9 7 7 7th 10 7 9 1') 8 9 8th 11 11 11 11 10 10 9th 15 16 14 18 12 13 10th 30 39 35 24 42 39 total 100 100 100 100 100 100 coefficient of concentration 0.343 0.401 0.376 0.324 0.459 0.382 Note Period I refers to years 1953-54 and 1954-55 and Period II refer tlo years 1963-64 and 1964-65. 3Governmont of India, Ministry of Labour and Employment, National Eniploymiieizt Scrvice, Unemploym1ent in Urban Area, New Delhi, M-arch 1959, p. 12. 4Estimattj of saving and InNvostineat. in the Ind.ian Economy-1950-51 to 1962-03, Reserve Bank of India Bulletin, March 1965. "Reserve Bank of India, Report on Cimrrency and .Finance, 1972-73. "National Council of Applied Econnmnic Research, Urblnn Incomne and Savi1g: New Delhi, 1962. PATTERNS OF INCOME DISTRIB3 UTION IN INDIA 165 TABLE 2. DISTRIBUTION OF DISPOSABLE INCOME (BY INCOME GROUP OF INDIVIDUALS) (per cent) period I pariod I income group (decile) rural urban all-India rural urban all-India 1st 4 3 3 3 2 3 2nd 4 4 4 4 4 4 3rd 5 4 5 6 4 5 4th 5 5 5 7 5 6 5th 8 5 5 9 6 6 6th 8 8 8 9 7 7 7th 10 8 9 10 7 9 8th 12 11 11 12 11 12 9th 15 15 16 17 13 13 10th 29 37 34 23 41 35 total 100 100 100 100 100 100 coefficient of concentration 0.341 0.392 0.371 0.319 0.448 0.375 Note: Period I refers to years 1953-54 and 1954-55 and Period II refers to years 1963.64 and 1964-65 TABLE 3. DISTRIBUTION OF CONSUliPTION EXPENDITURE (BY INCOM GROUP OF INDIVIDUALS) (per cent) period I period II income group (decile) rural urban all-Incia rural urban all-India 1st 4 3 5 5 3 5 2nd 4 4 5 4 5 5 3rd 5 5 5 6 5 5 4th 6 5 5 7 6 6 6bh 8 7 7 9 7 7 6th 8 8 8 9 8 9 7th 10 10 10 11 10 10 8th 11 11 10 11 11 12 9th 16 15 15 16 16 14 10th 28 32 30 22 29 27 total 100 100 100 100 100 100 coefficient ofconcentration 0.331 0.366 0.354 0.311 0.361 0,338 Note: Period I refers to years 1953-54 and 1954-55 and Period II refers to years 1963-64 and 1964-65. (1) The urban pattern is more unequal than the rural pattern; the con- centration ratios for the two periods were 0.343 and 0.324 for the rural sector as against 0.401 and 0.459 in the urban sector. 166 P. D. OJHA AND V. V. BHAIITT TABL:E 4. PATTE RN OF INCOME DISTRIBUTION IN INDIA; CHANGES IN CONCENTRATION COEFFICIENT BETWEEN PERIOD I AND PERIOD II period I period XI consumption persor,al personal consumption personal personal expenditure disposable income expenditure disposable income income income ruralseotor 0.331 0.341 0.343 0.311 0.319 0.324 urban sector 0.366 0.392 0.401 0.361 0,448 0.459 all-India 0.354 0.371 0.376 0.338 0.375 0.382 Note: Period I refers to years 1963-54 and 1954-55 and Period II refers to years 1963-64 and 1964-65. (2) There has been a reduction in income inequality in the rural area in period II as compared to period I, while urban inequality seems to have in.. creased somewhat. (3) The overall income distribution, as a result, became more unequal in period II than in period I; the concentration ratio with regard to personal income increased from 0.376 to 0.382. The pattern of change with regard to disposable income was also similar. (4) The share of the top decile in personal income rose from 35 percent in period I to 39 percent in period II. However, its share in disposable income rose from 34 perent to over 35 percent; this probably indicates the effectiveness of tax measures in reducing inequality to some extent. (5) The share of the bottom ten percent in personal inoome declined in period II as compared to period I but its share in disposable income and con- sumption remained the saine in both the periods. (6) The shares of bottom 30 percent and next 50 per cent in personal income declined in period II as compared to period I whole that of top 20 per cent increased. In view of the margin of error involved in the basic data, income distribution does not appear to have changed during this period of a . t ade or so. Of course, the number of households below the poverty line, defined in various ways seems to have increased in absolute mtagnitude though the pro- portion of such households in the total seems to have remained the same.7'8'9 7V. M. Dandekar and N. Rath, Poverty in India, Ecnomio and rolitical Weekly, January 2 and 9, 1971, 1Bombay. "P. D. Ojha, A Configuration of Indian Povorty, Reserve Bank of India Bulletin, January 1970, Bombay. OB. S. Minhas, Rural Poverty, Laand Redistribution and Development, indian Beonomic Review April 1970, Delhi. COMMERCE ANNUAL Ni NI BER 1974 A decade of performance of Industrial Development Bank of India By V. V. BHATT THE Industrial Development Bank of its career-a phase of innovative acti- India (IDBI) was set up in July 1964, vity in a variety of fields, particularly as a wholly owned subsidiary of the related to initiating and promoting Reserve Bank of India (RBI), in terms industrialisation over a wide front in of the Industrial Development Bank the light of the country's development of India Act 1964, to (a) co-ordinate objectives. the activities of the other financial insti- tutions (including commercial banks), (b) supplemernt their resources, (c) plan I-Institutional set-up prior to IDBI and promote industries of key signi- As a result of the deliberate and ficance to the industrial structure and purposive efforts made by the Reserve (d) adopt and enforce a system of prio- Bank of India and the Government, a rities in promoting further industrial fairly wide network of financial insti- growth. tutions had emerged, prior to the set- A decade has elapsed since this in- ting up of IDBI, to cater to the require- stitution was set up. This is too short ments of term finance of the industrial a period in the life of a development sector. The Industrial Finance Corpo- bank. But even in this brief span, the ration of India (IFCI) was the first Bank has established itself as an apex all-India financ,al institution set up in development bank. Its attention till 1948 to providr. term finance to medium the middle of 1970 was concentrated on and large sized industrial projects. This strengthening its organisational frame- was followed by the setting up, at the work, establishing viable links with State level, of State Financial Corpora- the other financial institutions, provid- tions (SFCs), one in each State, to ing financial assistance to the strategic meet the needs of small and medium sectors of industry, and co-ordinating sectors of industry, The Industrial and supplementing the activities of the Credit and Investment Corporation of other term-financing institutions-tasks India (ICICI) was set up in 1955 with which are basic for the evolution of foreign participation under the aegis of an all-India apex development bank. the World Bank. The Life Insurance Having attained a degree of maturity Corporation of India (LIC), set up in its functioning, the IDBI, with the in 1956 as a result of nationalisa- change in its top management after tion of the existing life insurance June 1970, entered into a new phase of companies, also provided inclustrial concerns with risk capital as well as loan assistance. Commercial banks Dr Bhatt is on the staff of Economic too were iiidiucedu by the Reserve Bank Development Institute, World Bank, to engage to a limitecl extent in the field Washington D.C. of term financing of industries; this Table I: Assistance-Sanctions and disbursements (Rs crores) Sanctions (Effective) Utilisation First Five Year Second Five Year First Five Year Second Five Year Sr. Scheme Period (l96A-69) Period (1969X74) Period (1964.69) Period (1969-74) No. -_ Amount Per cent Amount Per cent Amount Per cent Amount Per cent 1. Direct Assistance (includ- ing underwriting and direct subscription) .. .. 108.5 40.6 230.8 32.2 87,5 37.7 114.8 23.2 2. Refiance of industrial loans ,. .. 7. 82.1 30.7 140.1 19.6 84.4 36.4 110.4 22.3 3. Rediscounting of Bills ,. 37.3 14.0 224.0 31.3 32.1 13.8 189.4 38.3 4. Subscription to Shares and Bonds of Financial Insti- tutions .. .. .. 23.9 9.0 25.3 3,5 23.8 10.3 23.9 4.8 Total of I to 4 ., 251.8 94.3 620.6 86.6 227.8 98.2 438.6 88.6 5. Exports (including refinance) .. .. 15.3 5.7 96.3 13.4 4,1 1.8 56.3 11.4 Total of I to 5 t. 267.1 100.0 716,5 100.0 231.9 100.0 494,9 100.0 6. Guarantees (including for exports) ., ,. 24.8 - 3,7 - - - - - SOURCE: IDBI -Annual Report, 1974. activity of the commercial banks was II-cationale for the establishment facilitated by the trovision of refinance of IDBl by the Refinance Corporation for Indus- try Ltd (RCI), which was set up under This institutional framework had the Reserve Bank auspices in 1958.- doubtless served, with a fair degree of There were also State-owned Industrial 5Uccess, to nivet the growinig financial Development Corporations (SIDCs) in a needs of industrial growth. Howvever, it few States, which though operating pri- Was felt that the totality of its contri- marily as development agencies, also bution was not adequate in terms of provided finance to industry mainly by nagnitude as well as the range and pat- way of participation in share capital. In tern of financing for rapid and diversi- the small scale sector, the National fied growth. Further, this framework Small Industries Corporationi Ltd was lacked an eflective mechanism to co- set up at an all-India level in 1955, orcdinate and initegrate the functioning which, besides provding term finance, of the diverse institutions in the field. which, besides prvcdingterm fisane o In the words of the then Finance Minis- also import-ed machinery for sale on te weea ogtr ie sncs hire purchase basis to small sector in- ter, where a long-teri view is neces- dustries. The Unit Trust of India (UTI) sary and a certain amount of risk has to was set up under the Reserve Bank aus- be taken, the existing iistLtutioils tend, pices in February 1964 for mobilizing by reason of their statutory obligations saving through an attractive finiancial and traditions, to be coinservative, and instruLment and clhanneling it into pro- caninot in any case be very helpful.", ductive investment through UTI's sub- i 1.xtractt from i tbespeech of tile Finance scriptioni to shares and debentures of in- Minister wdtilo introdueiro. t.LI IDB)1I bill irx the dustrial units. Lok Snblia oxt April 3(, 1964, There was thus need for a co-ordi- sions which would reauire to be regulat. nating machinery, which could estab- ed within the framewoik of proper lish working relationship with the other monetary and credit management: institutions and build a pattern of in- There was also a need to co-ordinate ter-institutional co-operation that can the national credit policy with the pace facilitate the evolution of a rational and and pattern of investment activity-a cohesive structure of financial institu- task which falls within the proper tions, adapted to the changing needs of sphere of responsibility of the Reserve the emerging industrial structure with Bank. This arrangement has the ad- its growing complexity of inter-relation- vantage of bringing together, under one ships. Further, a central development unified set up, the entire range of fin- institution was essential to provide ancial and credit institutions; it is only dynamic leadership in the task of pro- thus that a unified and integrated ap- moting a wivlely diffused and diversified, proach in the field of the financial sys- yet viable, process of industrialization. tem can be evolved. Thirdly, the Re- Such then was the rationale for the serve Bank had for a long time been establishment of the IDBI in July 1964 helping the Central and State Govern- as an apex development bank under the ments in evolving an appropriate struc- Reserve Bank auspices. ture of financial institutions and had, in To facilitate the performance of its particular, played a dynamic role in set- vital functions, the IDBI, unlike other ting up a complex of institutions. financial institutions, is not hampered In the world of the then Finance by any statutory inhibitions and rigidi- Minister: "The Reserve Bank, I think, ties. The IDBI Act provides understand- is today the institution, which can ably for a considerable measure of ope- most appropriately guide a development rational flexibility. The Bank has been bank of this kind. The Reserve Bank is. empowered to finance all types of in- and I hope it wvill continue to be, free dustrial concerns engaged in the from the pressure of political or other manufacture and processing of goods, influences. It is in a position to take mining, transport, generation and dis- purely objective view of our needs. 1 tribution of power in both the public have no doubt that under the auspices and the private sectors and irres- and with the assistance of the Reserve pectire of the forms of their orgqnizaa Bank, the Development Bank will be tion. There are no restrictions as re- able to discharge its fairly onerous gards the nature and type of secturity burdens satisfactorily."2 that may be accepted from industrial It was therefore deemed desirable concerns. Nor are there any maximum to have an institution legally separate or minimum limits prescribed either for from the Reserve Bank but yet closely assistance to a concern or for the size associated with it to guide, supervise and of the concern itself, undertake the entire range of activi- ties relating to industrial finance. In- III -IDBI: A subsidiary of the deed, this close association of the Reserve Bank IDBI with the Reserve Bank has helped The IDBI was set up as a wholly the IDBI to a significant extent in over- owned subsidiary of the Reserve Bank coming the pi-oblems of organisation with a common Board of Ditectors for a and personnel, facilitatiing its refinanc- variety of reasons. The IDBI is in a int, rediscounting and other oeratiolns sense a lender of the last resort a,ndl with the banks and] the SFCs, an(Il evolv- its role with regard to term finance is toig a strueture of policies apdropniaLe in some respects akin to that of the Re- to the euioenTgihig monetary aotd ecol-o serve Bank in the field of short term mic sittnation. This feature of the evolv- finance. Seconidly, with the passage of ing pattei-ri and structure of the finan- finace.Secndly wih te pasag ofcial instituitions in India has added a time, the operations of the IDBI were c - -. Iih ae expected to assume considerable dimen- 2 Ibid. Table I: Assistance sanctioned (effective) to units in specified backward districts (Rs crores) First Five-Year Period Second Five-Year Period (1964-69) (1969-74) Specified Specified Total backward Per cent Total backward Per cent districts districts Direct Assistance('D .. .. 108.5 14.4 13.3 230.7 104.0 45.1 Refinance .. .. .. 82.1 16.0 19.5 140.1 40.8 29.1 Bills Rediscounting .. .. 37.3 5,2 13.9 224.0 35.6 15.9 Total .. .. .. 227.9 35.6 15.6 594.8 180.4 30.3 @ Excluding guarantee assistance SOURCE: IDBI Annual Report, 1974 Table Ill: Refinance assistance to small-scale induitry (Effective sanctions in Rs crores) First Five-Year Second Five-Year Period (1964-69) Period (1969-74) No. Amount No. Amount 1. Total Refinance ,. .. .. 837 82.1 9,016 14.1 2. Refinance to small-scale industry and small-road transport operators 247 3.3 8,491 90.9 3. Percentage share of 2 in 1 29,5 4.0 94,2 64,9 SOURCE: It)BI Annual Report, 1974 new dimension to the theory and prac- fertilizer projects, fotur petro-chemical tice of central banking, projects, two aluminium projects, two alloy steel projects, four paper pro- jects, five tire projects and two cement IV-IDBI : Role as an apex projects. Development Bank The IDBI has devised a variety of mechanisms for performing its role as This function has been relevant an apex development bank. Such a not merely for large projects. It has as- function involves for the IDBI granting sumed this function also for small pro- of substantial assistance and even the jects introdlucing new technology under assumption of leadership role in some the leadership of new technician entre- cases, It has been assisting directly and preneurs. For example, the IDBI has otherwise iindustrial projects in new assisted such projects in fields like tex- fields-projects which because of tech- tiles, electronics and light engineering. nological compulsioiis are of a large The role of a co-ordinator at an all- size and require substanitial capital in- India level is being performed through vestment. In such cases, it has assumed the machinery of a monthly Inter-In- a leadership role, For example, such stitutional AMeeting comprising, under a role has been played so far by the the IDBI leadership, LIC, UTI, IFCI IDBI in connection with eight major and ICICI. It is at these meetings that broacd policies in the field of project fin- -a new function pregnant with great ancing are discussed and co-ordinated possibilities. and action taken with regard to financial The IDBI under its Statute was ex- and technical assistance on a consortium pected to play an active promotional basis for large as well as medium pro- role for facilitating a widely diffused jects. process of viable industrialization. This function was taken up by the IDBI in projects all over the countryf the IDBI 1970 after it attained a degree of matu- performs its two co ury,t of rity in the field of development finance. supplerrmsnts twsouroes-purveyordiofFor this purpose, it was essential for supplementary resources aod co-ordina- the IDBI set up to develop live and assistance and bills rediscounting assis intimate contact with the economic tance to the commercial banks and the rent regions and States of the country. SFCs. These schemes have enabled the As a first step, therefore the IDBI IDBI to facilitate industrialization in a opened three regional offices-one each large number of States and backward ipne threEse rnegionaofie-n eCachta~ a s Southern Region (Madras) and the In the field of medium and long- Northern Region (New Delhi). Further, term export financing, the IDBI again it has by now opened a branch office has been playing these two roles for practically each State. through its scheme of refinancing banks' The second major step related to assistance as well as direct participa- the identification of project ideas in tion in export financing with the banks. backward areas. The IDBI has been The IDBI has assumed the leadership keenly aware of the limitations of finan- role in this field by inducing, through cial and fiscal incentives in promoting appropriate mechanisms, the banks and industrial development in backward export houses to remain in live and close areas. It has been recognized that it touch with the IDBI.3 would be essential to undertake con- siderable amount of project work for The IDBI S i lnstrumental in streng- this purpose. This work comprises (a) SFCs as wtell as the other term lend identification of project ideas, (b) pre- ing institutions throtugh its subscripion paration of preliminary feasibility to their bonds and shares. To meet the studres, (c) search for management and special assi;3,ace requirements of entropi-eneuLiiial talents, (d) preparation sicki enterprises the IDBI took the of detailed pr-oject reports, (e) manage- sick"tentierpinsesthen upiDB197 took the rial, technical and financial assistance initiative in setting up in 1971 the In- for alproehct cimpalemdentnatin, () ritca dustrial Reconstruction Corporation of frpoetipeetto,()ciia dia RIRCIo io evaluation of the project from the natio- Idia (xRCnal point of view, and (g) finally pro- ject supervision. Accordingly, the IDBI with the as- V-Promotional function of the IDBI sistance of other term-lending institu- tions initiated surveys of backward The years 1970-71 and 1971-72 re- States in 1970 for the purpose of iden- presented a landmark in the evolving tifying specific project ideas in the light role and functions of the IDBI. This of n tural and other resources, demand was a period of consolidation as well conditions and infrastructuiral facilities as exploration. As a part of consolida- as WoUld emerge over a period of next tion, its structural-functional set-up five to ten years. So far eighteen such was streamlined and its methods and surveys have been completed; these re- criteria sharpened. Exploration was late to all States/Union territories de- with regard to its promotional function marcated as backward by the Planning C ommission. All the project ideas thus A7Sual.Rports 1971 and identified as well as others suggested 1972. Table IV; Sources and uses of funds (Rs crores) First Second Since inc-ption five five upto end of years years June, 1974 Sources 1. Increase in paid-up capital . .. .. 20,00 30.00 50.00 (7.7) (5.2) (6.1) 2. Increase in reserves/surplus .. .. .t 10.30 19.15 529.4 (3.9) (3.3) (3.5) 3. Borrowings . . .... .. .. .. 151.27 236.32 387.59 (58.3) (40.7) (46,9) 4. Repayments by borrowers, sale/redemption of investments (a) Direct assistance .. .. .. . 2.53 54.27 56.80 (1.0) (9.3) (6.9) (b) Indirect assistance .. .. .. .. 69.61 205414 274.75 (26.8) (35.3) (33.2) 5. Od6ers 5. .. .. ,, ., 5,90 21.47 27.37 (2.3) (3.7) (3.4) 6. Cash and liquid resources ,. .. (2 - 14.58 - (2.5) Total .. . , . .. .. . 259.61 580,93 825.96 (100.0) (100.0) (100,0) Uses I. Disbursement of assistance- (a) Direct assistance .. .. ,. 87.53 150,63 238.16 (33.7) (25.9) (28.8) (b) Indirect assistance .. ,. .. .. 149.64 378,99 528.63 (57.7) (65.2) (64.0) 2. Repayment of borrowings from Government .. - 31,73 31.73 (5.5) (3.8) 3. Others .. .. .. .. .. ., 7,86 5,80 13.66 (3.0) (1.0) (1.7) 4. Cash and liquid resources .. .. .. 14,58 13.78 13.78 (5,6 (2 (1,7) Total .. .. .. .. .. 259,61 580.93 825.96 (100,0) (100,0) (100.O) SOURCE: IDBI AnnuallReport, 1974. by a variety of other institutions are mes, the financial institutions have com- compiled, processed and published in the missioned feasibility studies for 17 form of a Hand Book. different projects in Eastern India. Several of these ideas have been The search for potential entrepre- discussed with the respective State Gov- neurs is also engaging the attention of ernments. Of these, 48 projects involv- the IDBI and it has suggested suitable ing capital cost of Rs 171.5 crores are entrepreneurial/managerial training in the process of implementation and 15 programmes for potential entrepreneurs projects with a cost of Rs 284.9 crores in some States. Further, the IDBI is in are being processed by the financial in- touch with the SIDCs in some States stitutions for assistance. For crystalliz- as well as some business houses for ing the other ideas into concrete sche- undertaking the implementation and management of some identified project training to potential entrepreneurs and ideas in the joint sector and providing managers; (d) preparation of detailed on the job training to potential mana- project reports and (e) provision of gers who could take over the manage- technical and financial assistance on a ment function after a stated period of consortium basis to projects that are time. ripe for implementation. So far, such The IDBI on its own cannot under- groups have been formed in 16 States take all the different tasks related to To facilitate this work, the idea of project work. A new move hence was setting up a jointly sponsored and fin- initiated to bring together State-level anced Technical Consultancy Service financial institutions like SFC, SIDC Centre (TCSC) for each State by the SIIC, the "lead" banks in the States, Inter-Institutional Group evolved as a State Government Industries Depart- logical extension of the Inter-Institu- ment and the term-lending institutions tional Group idea. The functions of the like the IFCI, the ICICI and the ARC Group would be performed by this Tech- under the leadership of the IDBI to nical Consultancy Service Centre. Sur- form an Inter-Institutional Group. This veys of industrial possibilities and iden- Group is expected to take decisions with tification of project ideas cannot be a regard to appropriate arrangements fox once for all affair; it has to be a con- undertaking the following functions: tinuous process that can be initiated by (a) identification and discussion of pro- the setting up of a TCSC. A refresher ject ideas; (b) preparation of prelimi- course :. entrepreneurial and manage- nary feasibility studies of identified pro- rial training can be devised in the light ject ideas; (c) search for entrepreneurial of the character of the potential entre- talent and provision of appropriate preneurs and managers in each State Table V: IDBI assistance (sanctions): Shares of various sectors'groups July 1964-june 1974 (Proportion per cent) Direct Direct Direct Assistance 1 Refinance d4 Refinance -! Bills Rediscounting I. Private sector .. .. .. ., 55.1 - - 2. Public sector . .. .. .. 3. 1 - - 3. Joint sector .. .. .. .. 38.4 - - 4. Co-operative sector . .. 3.4 - - 5. New technician oriented enterprises .. I. I - - 6. Large business houses . ., 34,3 22.4 28.2 7. Units in specified backward districts .. 34.9 31.2 26.2 8, Small scale .. .. .* - 16.0 - 9. Medium scale .. ,. .. .. 22,9 36.0 10. Large scale .. .. .. .. 77.1 48,0 - Total .. .. .. .. .. 100.0 100.0 100.0 SOURCE: IDBI Annual Report, 1974. and this work as well as the work of cial institutions. The IDBI collects on project studies can be undertaken by a a regular basis information from Re- research institute sponsored by the search Laboratories in respect of new Inter-Institutional Group. processes/products developed by them These ideas were discussed in some and this information is being circulated of the States that sought IDBI's advice to entrepreneurs through the State-level in this matter at ser-inars organised by IIGs, the IDBI. As a result, this process has Vt-Tasks ahead been initiated in Kerala, Bihar and The major tasks of the IDBI in North Eastern India and once these ex- The major tars of be related periments promise to be successful, it the next few years would be related ents rmse t, it to the new initiatives it has taken since may be possible to initiate action on 1970 with regard to its promotional these lines in othier States. role and functions. This promotional The work of detailed project-making function is of vital significance from is complex in a number of industry the point of view of promoting a via- fields and it may not be possible for ble yet widely diffused process of TCSCs or the technical staff of the in- industrialisation in the country. parti- stitutions to undertake such work on cularly in the backward areas and dist- their own. Besides, this work involves ricts. For ensuring continuity o, work the development of design skills that relating to the variour facets of the are rare in this country as most of the project cycle beginning from identifi- major projects have been designed so cation of project ideas, it would be far with the assistance of foreign tech- essential to set up, under tne auspices nical know-how. of the State-level IlGs, TCSC, on t.he From both these points of view- pattern of Kerala, Bihar and North- viz, (a) facilitating the work of the Eastern India in the other States. Other institutions in the field of preparation institutional mechanisms J.ke entrepre- of detailed project reports and (b) the neurial training programme, develop- active promotion of such skills in the ment centre and area development cor- country, it would be necessary to en- poration for intensive district develop- courage private consultancy services in ment would be necessary and the con- this field and associate them with the .cerned State Governments will have promotional task of the development to be induced to set up these mecha- banks. For this purpose, the IDBI, in nisms with the active assistance of the consultation with the other term-lending State lIGs. 2 institutions, has prepared a list of avail- The real problem is likely to be able technical consultancy services in with regard to the management of the country and has made it available identified projects. In viewv of the lack to all State-level institutions including of experienced managerial personnel "lead" banks so that they may be able in several States-a lack that cannot to avail of the benefit of these technical be made good by mere public sector consultancy services. ownership-some way of harnessing the This will facilitate the work of these available talents for the purpose of pro- institutions in the field of preparation ject implementation and on the job of preliminary feasibility studies and de. training of potential entreprelneurs! tailed project reports as well as in the managers would have to be found. task of project supervision. The IDBI Established business houses w%ould need also mnaintains a list of professional to be approached for the purp(se to nmanagerial personnel from various in- ensure effective management o- iden- stitutions/orgainizations who are prepar- tilied projects in the joint sector and ed to assist new projects in backward areas. This is done with a view to locat- ing suitable talents for specific jobs with 2 See IDBI, Finpncial lnstitutiows and regard to Drojects that are identified and Economic Development, Bombay, February are likely to be assisted by the finan- 1972, pp. 69-91. effective training Of managerial per- lem, the IDBI may have to set up, with sonnel who could take over the man- the assistance of the other institutions agement function from them within a in the field, a management consultancy stated period. Further, these houses service centre both at the all-India and should be induced 'to identify ssmall State-levels. In any case, with the scale project ideas in the fields that are growing number of assisted projects ancillary to their own large projects and the complexity of the task of effec- and induce and assist new entrepre- tive project supervision, it is neces- neurs to undertake them with the sup- sary to initiate action with regard to port of the financial institutions. Entre- the setting up of effective machinery preneurial/managerial talents are scarce for the purpose of in-depth study and and it would not be desirable to let supervision of difficult and complex the available talents lapse into acti- projects that face or are likely to face vity; they need to be tapped and har- some problems. nessed to attain the social objectives of The structure and functioning of a activating latent talents in potential development bank have to have a built- entrepreneurs/managers. Again, the in capacity to respond to new challen- business houses as well as the ges. Without such innovative ability, lead banks should be induced to make men as well as institutions, decay and available managerial/technical talents stagnate. This ability has to be delibe- with them for the purpose of identify- rately nurtured by a dynamic manage- ing and implementing such project com- ment set-up and for this purpose it is plexes in the districts as have percep- essentia], to evolve a group within the tible impact on employment, living IDBI and the Reserve Bank for a con- standards, nutrition and incomes. These tinuous review and appraisal of its project complexes should be related tc functions. The research function with- traditional skills and occupations that in the IDBI needs to be strengthened can be upgraded with the assistance for the purpose in co-operatiorn with of managerial/technical talents from the Reserve Bank and particularly with the modern sector without involving its Economic Department/Department large capital or foreign exchange ex- of Statistics. Finally, the IDBI should penditure. continue to function as an independent The IDBI's insistence in project institution, immune from the shifting financing is on (a) the economic viabi- Dpportunistic pressures of competitive lity of the project and (b) its sound politics; it is essential, for this reason management. It has been IDBI's ex- as well as for maintaining the integra- perience so far that mnany projects, tion and cohesiveness of the financial otherwise viable, fail to provide expec- structure, that the IDBI should continue ted benefits simply because of lack of to remain within the Reserve Bank set. efficiency in management. Again, the up. A vital institutional innovation search for entrepreneurs/managers for introduced by a far-sighted Finance the new projects in backward areas or Minister should be carried forward and districts, identified by the IDBI, poses not tampered with for short-sighted the same problem. To tackle this prob- political advantage. COMMERCE ANNUAL NUMBER 1974 THE WORLD BANK Headquarters 1818 H Street, N,W. |i Washington, D.C. 20433 U.S.A. European Office 66, avenue d'lena 75116 Paris, France Tokyo Office Kokusal Building 1-1 Marunouchi 3-chome Chiyoda-ku, Tokyo 100, Japan World Bank reprints No. 11. Hollis B. Chenery and Helen Hughes, "The International Division of Labor: The Case of Industry,t El Trimestre Economico [available in Spanish as published and in English translation] No. 12. Bension Varon and Kenji Takeuchi, "Developing Countries and Non-fuel Minerals," Foreign Affairs No. 13. P.B.R. Hazell and P.L. Scandizzo, "Competitive Demand Structures under Risk in Agricultural Linear Programming Models," American Journal of Agricultural Economics No. 14. Gabriel J. Roth, "Regulation of Buses in Cities:' Highway Research Record No. 15. Bela Belassa, "Estimating the Shadow Price of Foreign Exchange in Project Appraisal," Oxford Economic Papers No. 16. Hollis B. Chenery, "Restructuring the World Economy," Foreign Affairs [also available in Spanish as published in El Trimestre Econ6micoJ No.17. Helmut Schuster, "Transportation Planning Techniques: Problems and Prospects," Kyklos No.18. V.V. Bhatt, "Pattern of Income Distribution in India" [with P.D. Ojhal, Sankhyi and "A Decade of Performance of Industrial Development Bank of India," Commerce No.19. Michael Sharpston, "International Sub-contracting," Oxford Economic Papers No. 20. Hollis B. Chenery, "The Structuralist Approach to Development Policy," American Economic Review No. 21. V.V. Bhatt, "Some Aspects of Financial Policies and Central Banking in De- veloping Countries," World Development