[Answered] What are development banks? Critically examine the need of development banks in India to achieve $5 trillion dollar target.

upsc mains marathon questions answers
Demand of the question
Introduction. What are development banks?
Body. It’s importance in achieving $5 trillion economic target.
Conclusion. Way forward.

Development Banks are those financial institutions that provide funds and financial assistance to new and upcoming business enterprises. Development banks like IDBI, SIDBI, and IFCI etc. were set up to meet long term and short term capital requirements of the industry. They help in accelerating industrial and economic growth.

Development banks to achieve $5 trillion economic target:

  1. Industrial growth: Without Industrial growth $5 trillion dollar target can’t be achieved. It is the dynamic sector which contributes to the generation of employment and income in the country. Funds are provided by the development banks to start a new business venture, expansion and diversification of the business in new sector etc. These funds are needed to achieve several objectives that leads to accelerate economic growth and $5 trillion dream.
  2. Encouraging entrepreneurs: Emerging entrepreneurs are encouraged to give shape to their ideas. Development bank helps those entrepreneurs by providing funds for commencing new business. Government has recognised the importance of entrepreneurs in the economic growth and thus providing number of facilities and incentives to motivate them for undertaking industrial projects.
  3. Balanced regional development: $5 trillion economic target by 2022 can only we achieved if all the regions in India grow. Development bank helps in curbing regional disparities by providing funds to the entrepreneurs at low rate of interest if the organisation is planned in the backward areas. This is important for the development of all areas thereby making balanced regional development collectively moving toward $5 trillion goal.
  4. Filling gaps: It is not possible for the commercial banks to fulfill all financial needs of all the customers. Issue of Non-performing assets, absence of organised capital market, absence of adequate facilities for financing industries arise the problem of slow development. Such development banks fulfill this credit gap. They provide long-term funds for industries and help in growth.
  5. Helps policies implementation: Government formulates financial policies with the help of development banks. They also help in implementing these policies. For example, NABARD bank is set up as an apex development bank for extending support to the rural areas. Thus development banks are needed to fulfill government’s vision.
  6. Enhance Foreign Trade: Development banks help to promote foreign trade. Export-Import Bank of India (EXIM Bank) provide medium and long-term loans to exporters and importers from India. Development banks would encourage exports which are must to achieve the target.

Thus to achieve a $5 trillion dollar economic vision by 2022, development encouraged by development banks is needed. By providing long term loans it would help in achieving the target in desired timeline by encouraging growth.

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