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Role Of Financial Institutions In Economic Development

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Financial sector plays an indispensable role in the overall development of a country. The most important constituent of this sector is the financial institutions, which act as a conduit for the transfer of resources from net savers to net borrowers, that is, from those who spend less than their earnings to those who spend more than their earnings. The financial institutions have traditionally been the major source of long-term funds for the economy. These institutions provide a variety of financial products and services to fulfil the varied needs of the commercial sector. Besides, they provide assistance to new enterprises, small and medium firms as well as to the industries established in backward areas. Thus, they have helped in reducing regional disparities by inducing widespread industrial development.

The Government of India, in order to provide adequate supply of credit to various sectors of the economy, has evolved a well developed structure of financial institutions in the country. These financial institutions can be broadly categorised into All India institutions and State level institutions, depending upon the geographical coverage of their operations. At the national level, they provide long and medium term loans at reasonable rates of interest. They subscribe to the debenture issues of companies, underwrite public issue of shares, guarantee loans and deferred payments, etc. Though, the State level institutions are mainly concerned with the development of medium and small scale enterprises, but they provide the same type of financial assistance as the national level institutions.

National Level Institutions

A wide variety of financial institutions have been set up at the national level. They cater to the diverse financial requirements of the entrepreneurs. They include all India development banks like IDBI, SIDBI, IFCI Ltd, IIBI; specialised financial institutions like IVCF, ICICI Venture Funds Ltd, TFCI ; investment institutions like LIC, GIC, UTI; etc.

All-India Development Banks (AIDBs):- Includes those development banks which provide institutional credit to not only large and medium enterprises but also help in promotion and development of small scale industrial units. 

Industrial Development Bank of India (IDBI):- was established in July 1964 as an apex financial institution for industrial development in the country. It caters to the diversified needs of medium and large scale industries in the form of financial assistance, both direct and indirect. Direct assistance is provided by way of project loans, underwriting of and direct subscription to industrial securities, soft loans, technical refund loans, etc. While, indirect assistance is in the form of refinance facilities to industrial concerns.

Industrial Finance Corporation of India Ltd (IFCI Ltd):- was the first development finance institution set up in 1948 under the IFCI Act in order to pioneer long-term institutional credit to medium and large industries. It aims to provide financial assistance to industry by way of rupee and foreign currency loans, underwrites/subscribes the issue of stocks, shares, bonds and debentures of industrial concerns, etc. It has also diversified its activities in the field of merchant banking, syndication of loans, formulation of rehabilitation programmes, assignments relating to amalgamations and mergers, etc.

Small Industries Development Bank of India (SIDBI): was set up by the Government of India in April 1990, as a wholly owned subsidiary of IDBI. It is the principal financial institution for promotion, financing and development of small scale industries in the economy. It aims to empower the Micro, Small and Medium Enterprises (MSME) sector with a view to contributing to the process of economic growth, employment generation and balanced regional development.

Industrial Investment Bank of India Ltd (IIBI):- was set up in 1985 under the Industrial reconstruction Bank of India Act, 1984, as the principal credit and reconstruction agency for sick industrial units. It was converted into IIBI on March 17, 1997, as a full-fledged development financial institution. It assists industry mainly in medium and large sector through wide ranging products and services. Besides project finance, IIBI also provides short duration non-project asset-backed financing in the form of underwriting/direct subscription, deferred payment guarantees and working capital/other short-term loans to companies to meet their fund requirements.

Specialised Financial Institutions (SFIs):- are the institutions which have been set up to serve the increasing financial needs of commerce and trade in the area of venture capital, credit rating and leasing, etc. 

IFCI Venture Capital Funds Ltd (IVCF):- formerly known as Risk Capital & Technology Finance Corporation Ltd (RCTC), is a subsidiary of IFCI Ltd. It was promoted with the objective of broadening entrepreneurial base in the country by facilitating funding to ventures involving innovative product/process/technology. Initially, it started providing financial assistance by way of soft loans to promoters under its 'Risk Capital Scheme' . Since 1988, it also started providing finance under 'Technology Finance and Development Scheme' to projects for commercialisation of indigenous technology for new processes, products, market or services. Over the years, it has acquired great deal of experience in investing in technology-oriented projects.

ICICI Venture Funds Ltd:- formerly known as Technology Development & Information Company of India Limited (TDICI), was founded in 1988 as a joint venture with the Unit Trust of India. Subsequently, it became a fully owned subsidiary of ICICI. It is a technology venture finance company, set up to sanction project finance for new technology ventures. The industrial units assisted by it are in the fields of computer, chemicals/polymers, drugs, diagnostics and vaccines, biotechnology, environmental engineering, etc.

Tourism Finance Corporation of India Ltd. (TFCI):- is a specialised financial institution set up by the Government of India for promotion and growth of tourist industry in the country. Apart from conventional tourism projects, it provides financial assistance for non-conventional tourism projects like amusement parks, ropeways, car rental services, ferries for inland water transport, etc. 

Investment Institutions:- are the most popular form of financial intermediaries, which particularly catering to the needs of small savers and investors. They deploy their assets largely in marketable securities. 

Life Insurance Corporation of India (LIC):- was established in 1956 as a wholly-owned corporation of the Government of India. It was formed bythe Life Insurance Corporation Act,1956 , with the objective of spreading life insurance much more widely and in particular to the rural area. It also extends assistance for development of infrastructure facilities like housing, rural electrification, water supply, sewerage, etc. In addition, it extends resource support to other financial institutions through subscription to their shares and bonds, etc. The Life Insurance Corporation of India also transacts business abroad and has offices in Fiji, Mauritius and United Kingdom . Besides the branch operations, the Corporation has established overseas subsidiaries jointly with reputed local partners in Bahrain, Nepal and Sri Lanka.

Unit Trust of India (UTI):- was set up as a body corporate under the UTI Act, 1963, with a view to encourage savings and investment. It mobilises savings of small investors through sale of units and channelises them into corporate investments mainly by way of secondary capital market operations. Thus, its primary objective is to stimulate and pool the savings of the middle and low income groups and enable them to share the benefits of the rapidly growing industrialisation in the country. In December 2002, the UTI Act, 1963 was repealed with the passage of Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, paving the way for the bifurcation of UTI into 2 entities, UTI-I and UTI-II with effect from 1st February 2003.

General Insurance Corporation of India (GIC) :- was formed in pursuance of the General Insurance Business (Nationalisation) Act, 1972(GIBNA ), for the purpose of superintending, controlling and carrying on the business of general insurance or non-life insurance. Initially, GIC had four subsidiary branches, namely, National Insurance Company Ltd ,The New India Assurance Company Ltd , The Oriental Insurance Company Ltd and United India Insurance Company Ltd . But these branches were delinked from GIC in 2000 to form an association known as 'GIPSA' (General Insurance Public Sector Association).

State Level Institutions

Several financial institutions have been set up at the State level which supplement the financial assistance provided by the all India institutions. They act as a catalyst for promotion of investment and industrial development in the respective States. They broadly consist of 'State financial corporations' and 'State industrial development corporations'.

State Financial Corporations (SFCs) :- are the State-level financial institutions which play a crucial role in the development of small and medium enterprises in the concerned States. They provide financial assistance in the form of term loans, direct subscription to equity/debentures, guarantees, discounting of bills of exchange and seed/ special capital, etc. SFCs have been set up with the objective of catalysing higher investment, generating greater employment and widening the ownership base of industries. They have also started providing assistance to newer types of business activities like floriculture, tissue culture, poultry farming, commercial complexes and services related to engineering, marketing, etc. There are 18 State Financial Corporations (SFCs) in the country:-

Andhra Pradesh State Financial Corporation (APSFC)

Himachal Pradesh Financial Corporation (HPFC)

Madhya Pradesh Financial Corporation (MPFC)

North Eastern Development Finance Corporation (NEDFI)

Rajasthan Finance Corporation (RFC)

Tamil Nadu Industrial Investment Corporation Limited

Uttar Pradesh Financial Corporation (UPFC)

Delhi Financial Corporation (DFC)

Gujarat State Financial Corporation (GSFC)

The Economic Development Corporation of Goa ( EDC)

Haryana Financial Corporation (  HFC )

Jammu & Kashmir State Financial Corporation ( JKSFC)

Karnataka State Financial Corporation (KSFC)

Kerala Financial Corporation ( KFC )

Maharashtra State Financial Corporation (MSFC )

Orissa State Financial Corporation (OSFC)

Punjab Financial Corporation (PFC)

West Bengal Financial Corporation (WBFC) 

State Industrial Development Corporations (SIDCs) :- have been established under the Companies Act, 1956, as wholly-owned undertakings of State Governments. They have been set up with the aim of promoting industrial development in the respective States and providing financial assistance to small entrepreneurs. They are also involved in setting up of medium and large industrial projects in the joint sector/assisted sector in collaboration with private entrepreneurs or wholly-owned subsidiaries. They are undertaking a variety of promotional activities such as preparation of feasibility reports; conducting industrial potential surveys; entrepreneurship training and development programmes; as well as developing industrial areas/estates. The State Industrial Development Corporations in the country are:- 

Assam Industrial Development Corporation Ltd (AIDC)

Andaman & Nicobar Islands Integrated Development Corporation Ltd (ANIIDCO)

Andhra Pradesh Industrial Development Corporation Ltd (APIDC)

Bihar State Credit and Investment Corporation Ltd. (BICICO)

Chhattisgarh State Industrial Development Corporation Limited (CSIDC)

Goa Industrial Development Corporation

Gujarat Industrial Development Corporation (GIDC)

Haryana State Industrial & Infrastructure Development Corporation Ltd. (HSIIDC)

Himachal Pradesh State Industrial Development Corporation Ltd. (HPSIDC)

Jammu and Kashmir State Industrial Development Corporation Ltd.

Karnataka State Industrial Investment & Development Corporation Ltd. (KSIIDC)

Kerala State Industrial Development Corporation Ltd. (KSIDC)

Maharashtra Industrial Development Corporation (MIDC)

Manipur Industrial Development Corporation Ltd. (MANIDCO)

Madhya Pradesh State Industrial Development Corporation Ltd. (MPSIDC)

Nagaland Industrial Development Corporation Ltd. (NIDC)

Orissa Industrial Infrastructure Development Corporation

Omnibus Industrial Development Corporation (OIDC), Daman & Diu and Dadra & Nagar Haveli.

Pudhucherry Industrial Promotion Development and Investment Corporation Ltd. (PIPDIC)

Uttar Pradesh State Industrial Development Corporation

Punjab State Industrial Development Corporation Ltd. (PSIDC)

Rajasthan State Industrial Development & Investment Corporation Ltd. (RIICO)

Sikkim Industrial Development & Investment Corporation Ltd. (SIDICO)

Tamil Nadu Industrial Development Corporation Ltd. (TIDCO)

State Infrastructure & Industrial Development Corporation of Uttaranchal Ltd. (SIDCUL)

Tripura Industrial Development Corporation Ltd. (TIDC)

Industrial Development Bank of India (IDBI)

Industrial Development Bank of India (IDBI) is the tength largest bank in the world in terms of development. The National Stock Exchange (NSE), The National Securities Depository Services Ltd. (NSDL), Stock Holding Corporation of India (SHCIL) are some of the institutions which has been built by IDBI. IDBI is a strategic investor in a plethora of institutions which have revolutionized the Indian Financial Markets.

IDBI Bank, promoted by IDBI Group started in November 1995 with a branch at Indore with an equity capital base of Rs. 1000 million .

Main functions of IDBI

IDBI is vested with the responsibility of co-ordinating the working of institutions engaged in financing, promoting and developing industries. It has evolved an appropriate mechanism for this purpose. IDBI also undertakes/supports wide-ranging promotional activities including entrepreneurship development programmes for new entrepreneurs, provision of consultancy services for small and medium enterprises, upgradation of technology and programmes for economic upliftment of the underprivileged .

IDBI's role as a catalyst

IDBI's role as a catalyst to industrial development encompasses a wide spectrum of activities. IDBI can finance all types of industrial concerns covered under the provisions of the IDBI Act. With over three decades of service to the Indian industry, IDBI has grown substantially in terms of size of operations and portfolio .

Developmental Activities of IDBI

Promotional activities

In fulfilment of its developmental role, the Bank continues to perform a wide range of promotional activities relating to developmental programmes for new entrepreneurs, consultancy services for small and medium enterprises and programmes designed for accredited voluntary agencies for the economic upliftment of the underprivileged. These include entrepreneurship development, self-employment and wage employment in the industrial sector for the weaker sections of society through voluntary agencies, support to Science and Technology Entrepreneurs' Parks, Energy Conservation, Common Quality Testing Centres for small industries.

Technical Consultancy Organisations

With a view to making available at a reasonable cost, consultancy and advisory services to entrepreneurs, particularly to new and small entrepreneurs, IDBI, in collaboration with other All-India Financial Institutions, has set up a network of Technical Consultancy Organisations (TCOs) covering the entire country. TCOs offer diversified services to small and medium enterprises in the selection, formulation and appraisal of projects, their implementation and review.

Entrepreneurship Development Institutes

Realising that entrepreneurship development is the key to industrial development, IDBI played a prime role in setting up of the Entrepreneurship Development Institute of India for fostering entrepreneurship in the country. It has also established similar institutes in Bihar, Orissa, Madhya Pradesh and Uttar Pradesh. IDBI also extends financial support to various organisations in conducting studies or surveys of relevance to industrial development.

ICICI BANK

ICICI Bank services the financial sector for the entire set of banking requirements and provides a complete range of solutions.

The Financial Institutions and Syndication Group (FISG) is responsible for ICICI Bank's relationship with the financial sector.

Under this umbrella, the Bank caters exclusively to the needs of

       • Domestic Financial Institutions. 

       • Banks.

       • Mutual Funds.

       • Insurance Companies.

       • Fund Accounting.

The FISG has built strong relationships through various interactive measures, like seminars, training programs, sharing of market information and views with clients, organizing the Bank CEOs' Forum, etc.The services provided to our clients are

Transaction Banking

The Bank delivers world class banking services to financial sector clients. Our current roaming accounts empower you with 'Anytime, Anywhere Banking'. They are designed for your convenience. Our comprehensive collection and payment services span India's largest CMS network of over 4,500 branches. We provide correspondent banking tie-ups with foreign banks to assist them in their India-related businesses.

Loan Syndication

The FISG is responsible for syndication of loans to corporate clients. We ensure the participation of banks and financial institution for the syndication of loans. Some of the products syndicated are

       • Project Finance 

       • Corporate Term Loans 

       • Working Capital Loans 

       • Acquisition Finance, etc. 

Sell Down

ICICI Bank is a market leader in the securitisation and asset sell-down market. From its portfolio, the FISG offers different products to its clients in this segment. The products are:

       • Asset-Backed Securities (ABS). 

       • Mortgage-Backed Securities (MBS). 

       • Corporate Loan Sell-down. 

       • Direct Loan Assignment. 

Buyouts

As a part of a risk-diversification and portfolio-churning strategy, ICICI Bank offers buyouts of the assets of its financial sector clients.

Resources

The Bank also raises resources, from clients, for internal use by issuing a gamut of products, which run from Certificates of Deposit (CDs) to Term deposits to Term Loans.

The Industrial Finance Corporation of India Limited

Establishment

The Industrial Finance Corporation of India was established on 1st July, 1948 under the Industrial Finance Corporation Act, 1948 to provide financial assistance (medium and long-term) to large-scale industries all over the country. On 1st July, 1997 the name of Industrial Finance Corporation of India was changed as 'Industrial Finance Corporation of India Limited'.

Objects

The main object of Industrial Finance Corporation of India Limited is to provide financial assistance to large-scale industrial units particularly at a time when the normal banking accommodation is inadequate and not forthcoming to assist these  industrial units. Industrial enterprises, organized on the basis of proprietary or private limited company basis, cannot take loans from this corporation. Only the public limited companies are eligible to take loans from it.

Functions

The main functions of Industrial Finance Corporation of India Limited are as follows:

To grant medium and long-term loans ranging between Rs. 30 lakhs to Rs. 2 crores to large-sized industrial units which are repayable within a period of 25 years.

To guarantee loans raised by the industrial units which are repayable within a period of 25 years.

To underwrite the issue of stocks, shares, debentures or bonds b industrial units but must dispose of such securities within 7 years.

To issue debentures.

To accept public deposits up to Rs. 10 crores for a period of five years only.

To act as an agent for the Central Government and for the World Bank in respect of loans sanctioned by them to industrial units.

To guarantee deferred payments by importers of capital goods, who are able to obtain this concession from foreign manufacturers.

Miscellaneous: (i) To provide technical guidance to industrial units as to finance (loans), (ii) To guarantee loans in foreign currency. (iii) To examine utility of loans granted to industrial units, (iv) To guarantee loans raised from scheduled banks and State Co-operative Banks.

Management

The Industrial Finance Corporation or India is managed by a board of directors consisting of 13 members in all, both nominated and elected. The head of the board of directors is called chairman appointed by the Central Government with the consultation of board of directors for a period of three years only. Besides this board of directors, there is also a central committee consisting of five members in all, including president.

Financial Resources

The main financial resources of Industrial Finance Corporation of India Ltd. are as follows:

Share Capital: The authorized capital of the corporation is Rs. 1,000 corers divided into 2 lakhs shares of Rs. 5,000 each. Its paid-up capital on 31st March, 1997 was Rs. 352.81 crores.

Debentures: The corporation is also authorized to issue debentures and bonds. But their total amount should not exceed ten times of its paid-up share capital plus reserve funds.

Loans: The Corporation has the power to borrow funds (loans) from Industrial Development Bank of India. Foreign investment Institutions, Central Government and Reserve Bank of India.

Public Deposits: The Corporation can accept public deposits for a maximum period of five years. Further, the amount of public deposits cannot exceed Rs. 10 crores.

Reserve Fund: It is another sources of finance of the Corporation.

Foreign Currency Loans: The Corporation can also accept loans in foreign currency with the prior approval of the central government, such as, loans from International Bank and other International Financial Institutions.

Review of Progress (Operations)

The Corporation is granting loans to large-sized industrial units and industrial cooperative units. The amount of assistance varies from Rs. 30 lakhs to Rs. 2 crores for a period not exceeding 25 years. The assistance extended by the corporation has been to widely dispersed among allindustries ,  such as, power generation, telecom services, textiles, hotels, petroleum refining, iron and steel, cement, ports, sugar etc. Further, the assistance to any one industry has not exceeded 15% of the total outstanding assistance. Besides providingfinancial assistance, the corporation is also providing underwriting services, technical guidance, modernization assistance etc.

Critical Evaluation

Although the Corporation has been an important source of long-term finance to the large-sized and medium-sized industrial units of the country, yet it has been criticized on several grounds. The main points of criticism are as follows:

Nepotism and favoritism in granting loans.

Undue preference to well-established large business concerns.

Overlooking interests of small business and development of backward regions almost ignored.

Granting loans to business unit not covered by Five year Plans.

Very high interest rate.

Delay in sanctioning loans.

No participation in equity capital.

Most of the loans sanctioned to those industrial units which are already organized and financially strong.

Lays greater emphasis upon giving assistance to consumer goods industries as against basic and capital goods industries.

The corporation has failed in regional and territorial economic development.

The assistance is insignificant as compared to the requirements of the industrial unit and hence it has knocked at the doors of other financial institutions.

The recurring expenses of the corporation are quite high.

In spite of the above criticism, we must recognize that the corporation has done a good job. It has entered in new lines of business. Loans one concession rates are granted toindustries situated in backward areas.

LIST OF FINANCIAL INSTITUTIONS

Export Import Bank of India - Exim Bank

General Insurance Corporation of India - GIC

Industrial Development Bank of India -IDBI

Industrial Finance Corporation of India - IFCI

Indian Railways Finance Corporation Limited

Industrial Investment Bank of India

Life Insurance Corporation of India - LIC

National Bank for Agriculture and Rural Development - NABARD

National Housing Bank  - NHB

Power Finance Corporation Limited

Small Industries Development Bank of India - SIDBI

Securities Trading Corporation of India Limited  - STCI

Unit Trust of India - UTI

The role of international financial institutions in development and resolving crises

The global economic crisis in nearly all countries of the world, either developed or developing, being grappled by, sounds to continue at least till the end of this year.

Of course that is the optimistic anticipations of some positive thinking economists and financial Experts. Although some other well known economists and even world political leaders predict that this turmoil may protract for the next couple of years. Facing up this crisis, being unprecedented since the Great Depression of 1930s, now for a couple of months, world leaders, financial experts and experienced scholars had pretty number of meetings and conferences ,the last of which was G20 in London earlier this months; and truly speaking, good interaction have taken place so far.

Despite all discrepancies that did exist between some developing and developed countries for combating the crisis, they all shared the view that the role of international financial institutions in coping and solving this crisis was undeniable. Interestingly, some leaders unequivocally pointed out that "Global Crisis" required "Global Solution" and undoubtedly this underscore the importance international institutions have and the need to be supported and fortified in real sense.

The participating countries in G20 promised (now only promised) to financially support the International Monetary Fund (IMF) and to World Bank. So Far so good. But we need not to loose sight of the fact that translating those 'good promises into action" also needs an international good intention as well as global firm will on the part of all countries and in particular those mainly are accounted for this crisis.

More than six decades ago in 1945 and the final months of WWII, economists and politicians from forty five countries established IMF and WB in Brettonwoods, New Hampshire States. The name of these two institutions later changed into IFC. Then economists and politicians firmly believed in the existence of an international financial center which could anticipate and prevent global economic and financial crisis and if a turmoil such 1930 Great Depression outbreaks, these intuitions could timely provide rescue package to bail out the crisis stricken countries.

It is now sixty years that IMF assumed such function, and the Americans originally helped establish these bodies apparently for the above purposes. By and large, the objectives of IMF defined as helping out the macro economies of the countries and giving them appropriate and applicable financial advices if necessary and of course offer assistance ,given their economic and financial circumstances. And the World Bank job was set to focus mainly on long term development, poverty eradication, giving loans to developing countries and the economies in transition for building up their economic infrastructures.

It is noteworthy that one of the task assigned to these institutions have been encouraging privatization which actually did nothing whatsoever in this area and so the job later was assigned to World Trade Organization (WTO) .

These two global bodies in the 1940s and 1950s of their existence were somewhat successful in some grounds. One could have been hopeful that the Fund would develop and pursue economic goals. Moreover, it was obvious that the economic situation of the 50s through 70s might have made these bodies indispensable. However the lapse of time and rapid and deep drastic changes in global economy did prove that these bodies and particularly IMF and its recommendations and advices cannot but spark off an economic crisis and sometimes even has adversely political implications for the members and particularly for developing nations.

Another important problem of the body is that it has become a "politicized" body and turned into a political instrument and leverage for economic powers for imposing their will on those who need financial assistance. As matter of fact especially IMF have proved that it has taken a selective or if you like dual policies toward the nations .

In this short paper, it is not possible to refer to the weak actions of this body; we cannot but refer to two cases that this body faced. One was the crises that Southeast Asia and Mexico entangled nearly a decade before. Another case was Indonesia that IMF forces this country to accept an economic package which it was reluctant to accept. Then IMF urged the Indonesian government to cut subsidies on essential goods and fuel; this inevitably raised the prices, adversely affecting the poor and low-incoming classes. This has in turn led to street demonstration and political tensions .

More important the economic package shaped by IMF has proven to be incompatible with the national economic and social conditions of recipient nationas.Just a few years back former Secretary of States George Shultz said that :"… because of non transparent activities of IMF,this body needed to be dismantled…" .And even the US Congress that is the greatest member of IMF, in some occasions has not approved the appropriations for this body.

Another problem of this global institution, which has repeated so many times, is that the body has given same recommendations and advises to different countries that their problems and conditions have been widely diversed. Undoubtedly every country has her own conditions and problems that call for its own solutions and naturally should be in conformity with its special conditions and requirements .

In line with this policy, just a couple of years ago in order to solve unemployment in our country and some other developing nations, as well as focusing less on oil revenues in Iran and relying more on non-oil incomes, privatization, changing and development of protectionism and subsidiary policies, the World Bank put forward a number of proposals and solutions. Now it is quite relevant here to elaborate a little further on these points.

Firstly, it goes without saying, that those issues have been the motto of many years; the government, economists, research centers, financial experts, technocrats of the country have painstakingly mobilized all their powers and energy on these vital issues and so much works have been done on this. Therefore, it was not an initiation taken by this international body. Secondly, the restructuring a centralized, or in better word, state control to a market economy is a pretty long and intricate process. It is quite possible that in the course of this so-called transition span, a given country may not be able to live up to its employment targets, and even adversely have more workless manpower.

Discussing these points on the part of World Bank may cause these perceptions that the body is misinformed of global economic realities or it lacks the practical analysis of world economic development. Moreover, if a solution may work in country A, it necessarily will not help out country B from its problematic situation.

Now the present global economic crisis has unequivocally proved that all, including the international financial institutions need deep and thorough changes of their vision. To achieve that goal, certainly restructuring is unavoidable. Undoubtedly, this needs to be done hand in hand with regulatatory and supervisory system on financial and economic activities to which all leaders in their gatherings in the course of the past few months, of course except a few ,had no objection .

In the course of the last quarter century, a very decent initiation have been prevalent in various regions of the world, that has borne good results; and that is the indigenous and native solutions for their problems of the countries , and of course within the regional groups. Despite their diversifications, they have common economic interests, and so they could have taken national and regional policies and relatively overcome their economic problems. Association of Southeast Asian Nations, (ASEAN), South Asian for Regional Cooperation (SAARC) and some other region groups are among these establishments and so far have had remarkable achievements .

The United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), the biggest and most important regional arrangements with more than sixty members has topped poverty eradication, employment at its activities for years. This commission has so far conducted very realistic and deep survey and more important of all the members have so far exchanged the results of their studies. As for employment projects most advanced countries such as Japan ( an important and prestigious UNESCAP member) has been forerunner and is quiet prepared to share her expertise in this context with their partners in Asia ( and definitely ESCAP members and of course Iran, that is also an active partner and one of the constituents if this group).

By and large , IMF and World Bank have no choice but just as other international and regional organizations , given the new global economic realities, to proceed restructuring in deeds and not only in words. Moreover it sounds all Asian countries, including our own, given her native and indigenous conditions spares no effort to use the existing capacities within the regional grouping ( see Regionalism, a Path to Development,by this author published on February 16, 2009 PRESSTV website ) .

The best choice is that IMF and World Bank be used as the last resort provided they are adapted to the new global developments. Since, otherwise just using their advices and recommendations may not only bail out an economy but will deepen and worsen the crisis.

Having said all, that does not mean the Asian countries problems are isolated. This is the world of cooperation and interaction particularly now that the developments are so fast. To achieve that goal, global collaboration of course within the World Trade Organization (WTO) is instrumental and in present situation seems more critical.

ROLE OF FINANCIAL INSTITUTION IN ECONOMIC DEVLOPMENT

The progress of Indian economic development from 1947 to the present provides further evidence that individuals do respond to incentives in their pursuit of self-survival and accumulation of wealth. Further, the nature of this response depends on the economic climate, particularly the role of the government. India's economy struggled as long as it was based in a system of government regulation with little interaction with economic forces outside the country. The economic reforms of the early 1990s set the stage for substantial improvements in the Indian economy. As was stated earlier, India's economy grew at an average of 6.3 per cent from 1992-1993 to 2000-2001 (Acharya, 2001). Further, its rate of inflation and fiscal deficit both decreased substantially (Bhalla, 2000). Improved exchange rate management led to improved financing of the current account deficit and higher foreign exchange reserves. Finally, India's GDP and per capita income both increased substantially from 1990-1991 to 1998-1999.

India can do more, however, to further advance its economic development. Indeed, one of the more recent microeconomic approaches to economic growth is the promotion of entrepreneurial activities. Entrepreneurial efforts have been found to generate a wide range of economic benefits, including new businesses, new jobs, innovative products and services, and increased wealth for future community investment (Kayne, 1999). The following narrative explains in considerable depth how entrepreneurial activities have succeeded in several countries and how it can now be used to further India's economic development.

Following an extensive study of entrepreneurship in 21 countries, Reynolds, Hay, Bygrave, Camp and Autio (2000) concluded that successful entrepreneurial activity is strongly associated with economic growth. Their research was subsumed under the "Global Entrepreneurship Monitor" (GEM), a joint research initiative conducted by Babson College and London Business School and supported by the Kauffman Center for Entrepreneurial Leadership. Their findings, based on surveys of the adult population of each country, in-depth interviews of experts on entrepreneurship in each country, and the use of standardized national data, supported their conceptual model depicting the role of the entrepreneurial process in a country's economic development (see figure 2).

The GEM Conceptual Model suggests that the social-cultural-political context within a country must foster certain "General National Framework Conditions," which can generate not only the opportunities for entrepreneurship but also the capacity for entrepreneurship - in particular, the skills and motivation necessary to succeed. Together, the entrepreneurship opportunities, on the one hand, and the skills and motivation, on the other, lead to business dynamics that yield creative destruction, a process in which new firms are created and older, less efficient firms are destroyed. The overall result for a country is economic growth.

Of the eight "General National Framework Conditions" listed in figure 2, the three that Reynolds, et al. (2000) highlighted as especially important are the availability of financing for new entrepreneurs, the need for government policies which are supportive of entrepreneurial efforts, and the opportunities for education and training in entrepreneurship.

Given India's economic progress in recent years, the country may now be ready for the implementation of microeconomic policies that will foster entrepreneurial activities. Fortunately, in addition to the macroeconomic reforms mentioned earlier, India has taken other steps to lay the foundation for the type of economic growth that can be fostered only by entrepreneurial activities and appropriate economic policies that reflect individual rights and responsibilities. For example, in recent years India has made several important structural changes, including the construction of telecommunications networks and the implementation of a nationwide road-construction programme (Solomon, 2003). Further, several thousand "new economy" businesses - the types of businesses especially suited for entrepreneurship efforts-were started in 2000 alone.

The role that the government can play in the encouragement of entrepreneurial efforts has already been noted in the above narrative. Clearly, the government can develop policies concerning educational and financial support. Government policies on taxing and regulation of business also are relevant here, given that such policies can either promote or hamper entrepreneurial efforts. And the government can certainly help to provide networking opportunities among new and experienced entrepreneurs.

However, as Reynolds et al. (2000) concluded, the role of government beyond laying the foundation for entrepreneurship through tax and regulatory policies, support for education in entrepreneurship, and so forth should be minimized. Specifically, they found that a reduced government role in the economy including a low tax burden on both firms and individuals could yield substantially higher levels of entrepreneurial activity. They also found that, in India, excessive government regulations and related bureaucratic complexities did indeed handicap entrepreneurs. As was reported extensively earlier in this paper, India has for decades been saddled with a government that is far too involved in its economy.

CONCLUSION

The Indian economy provides a revealing contrast between how individuals react under a government-controlled environment and how they respond to a market-based environment. The evidence presented here suggests that recent market reforms encouraging individual enterprise have led to higher economic growth in that country. The reasoning here is not new, although it is refreshing to discover that this "tried-and-true" reasoning applies to developing as well as to developed nations. Specifically, reliance upon a free market, with its emphasis upon individual self-interest in survival and wealth accumulation, can yield a wide range of economic benefits. In India those benefits have included, among other things, increased economic growth, reduced inflation, a smaller fiscal deficit, and higher inflows of the foreign capital needed for investment.

We further conclude that India can generate additional economic growth by fostering entrepreneurial activities within its borders, particularly within its burgeoning middle class. Not only has entrepreneurship been found to yield significant economic benefits in a wide variety of nations, but India specifically has reached a point in its development where it can achieve similar results through entrepreneurial efforts. Among other things, India is poised to generate new business startups in the high technology area that can help it become a major competitor in the world economy. For example, it has a strong education base suited to entrepreneurial activities, increased inflows of foreign capital aimed at its growing information technology services sector, and a host of successful new business startups. To pursue further the entrepreneurial approach to economic growth, India must now provide opportunities for (1) education directed specifically at developing entrepreneurial skills, (2) financing of entrepreneurial efforts, and (3) networking among potential entrepreneurs and their experienced counterparts. Obviously, the government can play a substantial role in helping to provide these types of opportunities. It can also provide the appropriate tax and regulatory

policies and help the citizens of India to understand the link between entrepreneurial efforts and economic prosperity. However, its role overall must be minimized so that the influence of the free market and individual self-interest can be fully realized. Only time will tell if increased entrepreneurial activities in India will actually yield the economic benefits found in so many other nations of the world. Should India decide to pursue that avenue of economic development, then future research needs to examine the results of India's entrepreneurial programme. Perhaps more important, that research also needs to determine how India's success in entrepreneurial efforts might differ from those pursued in developed nations.


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