Let us take a concrete case. Suppose a development bank is set up
in a developing country to provide long-term financial assistance to viable
industrial projects. It assumes, to begin with, that project promoters would
seek its assistance and that its task is to appraise the soundness of projects
and provide such assistance as is really required. The initial task then is:
by what criteria should it appraise such projects? Should it look merely to
the financial viability of the project and its capacity to repay assistance
or should it appraise the project from the point of view of its contribution
to the development strategy adopted by the country or, more generally, from
the point of view of national advantage? Obviously, a development bank has
no rationale for its existence unless it looks to national advantage; for its
function is not merely banking, but such banking as would promote industrial
development. But, then, the problem is how to develop such criteria which
reflect national advantage? Obviously, it cannot derive these criteria
without reference to the development objectives, strategy and policies of
the country. So, it has to have a dialogue with the relevant state agencies
for the purpose. But this has to be a real dialogue and not a mere passive
adaptation of criteria to what the state agencies may suggest; for a development
bank really knows how projects are affected by policies,and it can analyze this
concrete evidence to suggest to the relevant agencies how strategy or policies
need to be modified in the light of concrete factual evidence.
Thus, no
criteria for project appraisal can be evolved without this interaction with
state agencies, and the bank's own criteria have to be modified in the light
of the emerging reality.
The application of whatever criteria that are devised cannot be a
mechanical process. For, the criteria may not be appropriate or the contribution
of a particular project to some development objectives may not be sharply
brought out by the criteria. Or, the contribution of a project to one
objective may be so overwhelmingly important that its contribution to other
objectives need to be ignored. The main point is: the appraisal criteria
should be such, and should evolve in such a manner that they help in the
process of decision making. This implies that the criteria should bring
out such implications of a project on the basis of which it is possible to
make an informed judgement. Criteria, after all, are tools for decision
making; they are not a substitute for decision making.
Decision making, again, is different from decision preparation.
The latter process is an analytic process of processing meaningfully all
relevant information. But decision making is not an analytic process. It
is based on the perction of the whole problem and not merely on partial
fragmentary analysis. This perception, insight, intelligence relate to the
total impact of a project -- the quantifiable as well as that which is not
quantifiable.8 Obviously, it cannot be governed by mechanical formulae,
tools and techniques; if it is so governed, it is the surest index of lack
of intelligence and hence lack of ability to take right decisions.9
Whatever the decision criteria, if they are not adopted by all
financial institutions, a development bank may find that financially viable
projects are diverted to other financial institutions, while it is left only
with a small number of risky projects. This situation indicates that a
development bank simply cannot function in a vacuum and has to have a close
relationship with other financial institutions with regard to the selection
criteria to be evolved. This relationship is important also for mobilizing
resources for the financing of what it considers to be sound projects, but
for which it cannot provide adequate assistance.
