Old wine, new bottle

New DFI should not just be a bailout of the old

One of the important announcements in this year’s Union Budget was the government’s decision to set up a development finance institution (DFI) to steer funds towards infrastructure. This decision, though much demanded by industry, has certain major problems. The DFI structure has been tried before in India, and it succumbed broadly to the same problems that plague the public-sector banking system — directed lending, and poor risk evaluation and supervision. Yet, if the government has determined on this course, then it must at least minimise the incentive problems and seek to ensure structural soundness in the proposed institution. The finance