CHAPTER-8 SUMMARY AND CONCLUSION 8.1 Corporate sector plays a very important role in the industrialisation plans and programmes of a Government. Large scale manufacturing activities involving modern technologies can only be possible through corporate form of business organisation. The growth and development of the corporate sector, is therefore, closely associated with the economic development of a country. An important ingredient for the successful promotion and operation of the corporate sector is availability of adequate and timely finance for investment in current and fixed assets. In the controlled and protected economy prevailing in India, prior to 1990, the corporate sector had to depend heavily on the financial assistance from the financial institutions including the commercial banks and their own internal surplus for their investment needs. The situation has changed very significantly during the liberalised post- 1990s. The capital market, money market, forex market, etc. have witnessed far reaching changes. New financial markets, new financial institutions, new financial investments are available to raise finance. Besides, availability of funds, and their proper utilisation of funds is also important for the successful operation of the company. While availability of funds depends on the conditions prevailing in the financial market, the condition of the industry, Government s plans and policies, the proper utilisation of funds depends on the management's policies and managerial ability. Improper utilisation of fund, selection of wrong sources of funds, etc. creates problems and different types of risks for the company, which may vary from industry to industry. In the above background the present study, attempts to examine the growth and financing pattern of selected industries in India.
279 This study aims at identifying the growth and financing pattern of private corporate sector in India during the period 1980-81 to 1997-98. Its specific objectives are : (i) to examine the growth and development of the private corporate sector during different plan periods: (2) to study the emerging sources of finance available to the private corporate sector in view of the globalised and liberalised market environment; (3) to analyse the trends of incremental investment in fixed assets and current assets and long and short-term financing sources; (4) to identify the determinants of both gross fixed investment and inventory investment and the financing pattern of such investments; (5) to analyse the industry wise variation in the internal and external source of finance and short and long-term financing pattern of investment and (6) to examine the role of institutional agencies in meeting the various financing needs of the corporate sector. For the purpose of studying the financing pattern, data on selected variables have been taken from the Stock Exchange Official Directory, Mumbai. A sample of 80 public limited manufacturing companies were selected after scanning a large number of companies, on the basis of their product, uniform accounting year and size of paid-up capital. Companies having paid up capital of Rs.25.00 lakhs and more as on 31st March, 1981 were included in the sample. The financial year is taken into consideration for the purpose of analysis. The sample companies belong to eight different industries. The eight industries selected are : Cement, Cotton & Weaving, General Engineering, Pharmaceuticals, Food Products, Chemical & Paints, Metal & Alloys and Paper & Pulp. The selected sample companies belong to manufacturing industries and grouped under traditional and modern industries. The modern industries include General Engineering, Pharmaceuticals, Food Products and Chemical and Paints. The traditional
280 industries include Cement, Cotton & Weaving, Metal & Alloys and Paper & Pulp. For the purpose of studying the growth of corporate sector, data have been collected from the Annual Reports on the Working and Administration of the Companies Act., 1956, Ministry of Finance, Department of Company Affairs, Govt, of India, New Delhi; Five-Year Plans, Planning Commission, Govt, of India, New Delhi; Financial Statistics of Joint Stock Companies in India, RBI, Mumbai. For the purpose of analysing the... institutional finance for industry, data have been collected from the "Reports on Development Banking in India" published by IDBI, Mumbai. The other important statistical data on which the study is based have been collected from various reports of Centre for Monitoring Indian Economy, SBI monthly Review, RBI Bulletins and the Economic Times, etc. The important statistical techniques used in the study are coefficient of correlation, step-wise multiple regression, analysis of variance (ANOVA), F test and arithmetic mean, besides simple percentages and ratios. The hypothesis tested are as follows : 1. Flow of funds from long-term sources are generally influenced by the investments in fixed assets. 2. Flow of funds from short-term sources is generally influenced by the investment in current assets. 3. Variation in gross fixed assets investment is related to the changes in internally generated funds, share capital and long-term debt. 4. Variation in the inventories investment is related to the variations in trade credit, internally generated funds and bank borrowing for working capital. 5. Internal funds play a significant role in financing of the companies.
281 8.2 MAJOR FINDINGS The major findings of the study may be enumerated as follows: 8.2.1 The corporate sector today occupies a vital role not only in industrially advanced economies but also in developing countries. In India, the corporate sector has witnessed a phenomenal growth over the last five decades especially in the eighties and nineties. The tangible growth of the corporate sector could be visualised from the fact that the total number of companies has increased from 28,532 in 1950-51 to 5,11,990 in 1998-99, with a corresponding increase in their paid-up capital from Rs.775.40 crores to Rs.250,464 crores. It is partly because of the removal of the various constraints pertaining to tariff, transport, administration and taxation, etc. under which the corporate sector had to work during the colonial period, and partly because of the creation of conducive environment for setting up of industries in the country in the post-liberalisation era. Qualitatively there has been a substantial increase in the technological sophistication, a marked increase in the diversity of the products and indigenous content, both of the goods produced and technical know-how generated by Indian industries. The development in the private corporate sector in India has been much faster than the public sector. It could be visualised from the fact that the total number of Government companies has increased from 74 in 1956-57 to 1229 in 1998-99. The corresponding figures of Non-Government companies are from 29283 to 510761. Similarly, from paid-up capital point of view, in case of Government companies, it has increased from Rs.72.6 crores in 1956-57 to Rs.94708.1 crores in 1998-99 whereas in case of Non- Government companies the corresponding figures are from Rs.1005 crores to Rs. 155755.9 crores. While there has been a significant growth in both Government and private sector companies during the last 40 years, the growth has been more prominent during the post-liberalisation period, specifically for the private corporate sector.
282 It has been revealed that the number of Non-Government companies have increased from 2,23,285 in 1991 to 5,10,761 as on 31st March 1999. Similarly, the paid-up capital of Non-Government companies has increased from Rs.20313.3 crores to Rs. 155755.9 crores during the corresponding period. So the rapid growth of private corporate sector after 1991 is the direct impact of liberalised economic policy followed by the Government. Region-wise distribution of companies as on 31st March, 1999 reveals that highest percentage of companies in terms of number under private corporate sector is in western region (31.08%), followed by northern region (30.63%), Southern region (21.42%) and eastern region (16.87%). Similarly, state-wise distribution of companies as on that date reveals that Maharashtra has the highest number of Non-Government companies (109,785) while West-Bengal has the highest number of Government companies (107). Growth of companies as per industrial activities shows that manufacturing companies have maintained the top position both at the Government and Non-Government companies. Due to rapid development in the information technology various service based industrial units in private corporate sector have recorded a significant increase during the postliberalisation period. This is due to the increasing encouragement contained in the privatisation policy. While the Government is keeping the strategic industries under its control, it has opened the door to the private sector in most other areas to accelerate the industrialisation process. The initiative of the Government in boosting the country s economy through liberalisation and globalisation policies have significantly contributed towards the growth of corporate sector in India.
283 8.2.2 For a healthy growth of a company, adequate funds should be available at competitive rates from a host of domestic and external sources during its commencement, continuance and growth. A company depends on capital market for meeting its long-term finance need and money market for meetings its short-term finance needs. Utilisation of wrong kind of sources of funds, make the funds riskier and hence the price demanded by the investor may increase. Traditionally, the corporate sector in India was depending mainly on loans from financial institutions and banks, trade credit, unsecured loans from private sources, internal surplus and limited contribution from the promoters in the form of share capital for financing their long and short-term financing needs. The inactive capital market and the limited money market never gave any scope for any innovation in new financing instruments or new financing sources. The developments of capital market and money market in India during the last two decades particularly in the nineties has exhibited a great deal of dynamism and hence, a beginning of new era. It signifies the high maturity and sophistication with various innovative. Instruments like GDR, ADR, ECBs, Floating Rate Bonds, Index Linked Bond, Deep Discount Bonds, Commercial Paper, Certificate of Deposits, etc. resulting in massive interaction between financial intermediaries and corporate sector. The innovation in the capital and money market not only expanded the sources of finance but also diversified the financing mix. The earlier Concentric dependence on bank finance gave way to open market operation and increasing dependence on external capital for financing the investment need. Considering the capital market as a legitimate and rich source of raising corporation finance, the private corporate sector entered the capital market in large number to raise huge amount of capital.
284 The large issue of equity in the capital market during the first part of 1990s heralded a new era in the Indian capital market.the activisation of the stock market virtually changed the financing pattern of the corporate sector with increasing dependence on equity fund. However, the occurrence of continued scams in the stock market and the threat of dilution of controlling power have dampened the stock market activities to a large extent during the period from 1997 to 2000. The absence of an active secondary debt market for debt securities coupled with a dull stock market has again led the corporate sector to depend more and more on bank finance for financing their investment needs. 8.2.3 Study on the pattern of assets and liabilities shows that the change in the of fixed assets has moved in direct proportion with the change in the long-term fund. The coefficient of correlation is calculated as 0.9471. Similarly, current assets as percentage of total tangible assets bear a high degree of positive relationship (0.9362) with short-term fund as percentage of total capital employed. Short-term financial position (liquidity) of an industry is ascertained by calculating current ratio. It is an indication of the liquidity position of the industry. The ratio for Cement Industries (2.68:1), Cotton & Weaving Industries (3.41:1), Food Products (2.28:1) and Metal & Alloys industries (2.12:1) have crossed the standard ratio of 2:1. So there has been a diversion of long-term funds in acquiring current assets in these industries. The debt-equity ratio, as on 1997-98 has declined in comparison to 1980-81. It reveals a gradual retirement of high cost debentures and repayments of high interest bearing loans made by industries. It also indicates stability in the organisation and more security to the creditors. But the total debt is more than total equity in six out of eight sample industries as
285 on 1997-98 showing a distinct preference for borrowed funds. The debt - equity ratio is higher in case of modern industries than the traditional industries. It may be due to the philosophy of modern industries management of playing "Trading on equity" while, traditional industries management of being very much conservative, tried to do their business mostly with their own funds. The Return on Investment (ROI) ratio, a crucial test of business efficiency in the use of total tangible assets of the business and its profitability shows an overall downward trend. This may be attributed to the increasing competition in market, higher cost of borrowed capital as well as unsound investment policy pursued by the industries in generating funds from operations. The capital structure which indicates the "trading on equity" shows a mixed result. The ratio is high in the industries like Cement, Cotton and Weaving, Food Products, General Engineering, Chemicals and Paints and Metal & Alloys. The capital structure is dominated by shareholders equity in case of industries like Pharmaceuticals and Paper & Pulp. Flow of funds from the long-term sources is generally influenced by investments in the fixed assets. The hypothesis is examined for the total sample as well as for the individual sample units with the help of percentage analysis and subsequently through the techniques of coefficients of correlation. The total sample analysis reveals that fixed assets as a percentage of total tangible assets bear a very high degree of positive relationship with the long-term fund as percentage of total capital employed. The coefficient of correlation is found to be 0.9471. which is statistically significant at 1 per cent level. The co-efficient of correlation of sample industries like Cement (.99), Cotton & Weaving (.95). General Engineering (.99), Pharmaceuticals (.83), Food Products (.84), Chemical and Paints (.99),
286 Metal and Alloys (.97) and P<aper & Pulp (.98) are also statistically significant at 1 per cent level. It reveals that the change in the proportion of fixed assets has moved in direct proportion with the change long-term fund. Hence, the hypothesis is found to be valid. Flow of funds from short-term sources is generally influenced by the investments in the currents assets. This hypothesis is tested for the total sample as well as individual sample industries with the help of percentage analysis and through the technique of coefficients of correlation.analysis of total sample reveals that current assets as a percentage of total tangible assets bear a high degree of positive relationship (0.9326) with short-term fund as percentage of total capital employed. It is statistically significant at 1 per cent level of significance. The coefficient of correlation of individual sample industries like Cement (.89), Cotton and Weaving (.97), General Engineering (.97), Pharmaceuticals (.93), Food Products (.96), Chemical & Paints (.99), Metal & Alloys (.98) and Paper & Pulp (.97) are also showing significant results. Thus, the results indicate that increase in short-term fund moved directly with increase in current assets and therefore, the hypothesis is found to be valid. 8.2.4 The financing patten of fixed investments and inventories are very important as they determine the level of business operations. Investments in fixed assets and inventories constitute about 65 per cent and 35 per cent of the total, capital employed. The econometric study shows the changing pattern of financing the gross fixed assets and inventories during 1980-81 to 1997-98. The analysis shows that gross fixed assets are mainly financed by Internally Generated Fund (IGF), Share Capital (SC) and Long- Term Debt (LTD). Relatively speaking, over the years, IGF played an important role in financing gross fixed assets. In 1980-81, IGF was found to
287 be a major determinant of gross fixed assets. Due acceleration in turnover high margin on sales and conservative dividend policy, in-1997-98, 52 per cent of the variation in gross fixed assets are explained by IGF. Investment in inventories is financed mainly by Trade Credit (TC), Internally Generated Fund (IGF) and Bank Borrowing for Working Capital (BB). Financing of inventories has been significantly shifted from bank borrowing (31 per cent) in 1980-81 to trade credit (66 per cent) in 1997-98. This indicates that trade credit has become a significant source of finance for inventories by the Indian industries during the recent period-. However, the contribution of internally generated fund is more or less uniform. The variation of inventory is also affected by the factors other than TC, IGF and BB. Hence, unsecured loans and deposits, misc. current liabilities and long-term fund may be attributed towards the variation of inventories. The hypothesis - variation in Gross Fixed Assets (GFA) - is related to the changes in Internally Generated Fund (IGF), Share Capital (SC) and long-term debt (LTD) is examined through stepwise multiple regression technique. In the year 1980-81, these three variables, i.e., IGF, SC and LTD have explained only 24 per cent variation in GFA. The corresponding figures in the year 1989-90 and 1997-98 are 98 per cent and 92 per cent respectively. The overall study from 1980-81 to 1997-98 reveals that the above three variables have explained only 78 per cent variation in GFA. Therefore, it implies that 22 per cent variation in GFA is unexplained and hence caused by variables other than IGF, SC and LTD. The similar result is also found in case of individual sample units that certain percentage of variation in GFA remained unexplained. However, in view of significant relationship between the two. the hypothesis that variation in GFA is related to IGF,SC and LTD is found to be valid to a large extent. With the liberalisation in the capital market, during the 1990 s, the corporate sector is
288 found to have increasingly depended on IGF, SC and LTD to finance their fixed assets need. The hypothesis that variation in inventories investment is related to variations in Trade Credit (TC), Internally Generated Fund (IGF) and Bank borrowing for Working Capital (BB) has been tested through stepwise multiple regression technique. In the year 1980-81, these three variables, i.e., TC, IGF and BB have explained 82 per cent variation in inventories. The corresponding figures.in the year 1989-90 and 1997-98 are 62 per cent and 76 per cent respectively. The overall study from 1980-81 to 1997-98 reveals that these variables have explained only 22 per cent variation in inventories investment and rest 78 per cent variation remained unexplained and therefore, caused by variables other than TC, IGF and BB. Analysis of individual sample industries also reveal that certain percentage remained unexplained by the above three variables. Hence, the hypothesis is a null hypothesis and rejected leading to a the conclusion that changes in inventories investment is mostly caused by changes in other variables like unsecured loans and deposits, misc. current liabilities, long-term fund besides TC, IGF and BB. 8.2.5 Analysis of sources of finance reveals that in all sample industries, external sources of finance dominated the total source during the period under study. While external sources contributed 59 per cent of the total fund, the share of the internal sources is found to be around 41 per cent. The low level of generation of internal funds is mainly attributable to high cost of production, low profitability and high corporate taxation. Retained profits and provision for depreciation are the two major components of internal source. In between these two, the contribution of retained profits is more prominent. Analysis of variance of internal source shows that both
289 industries and time are the assignable causes of variation of internal source. But industry, as a variable, affects more significantly than time. The private corporate sector grows over time due to setting up of new units, expansion, modernisation and diversification of business activities. Changing financing pattern has made external fund of greater importance. It is around 59 per cent of the total capital. Among the external fund, the contribution of debt and share capital is 88.14 per cent and 11.86 per cent respectively. Demand for external fund is largely governed by investment policies rather than earning capacity of the company. Investment in fixed assets exert more influence on modern industries while inventories have more influence on traditional industries due to seasonality factor. Analysis of variance of external equity and total debt confirms that both industry and time have assignable causes of variation. But industry, as a variable, affects significantly the variation of external equity and total debt as components of external sources of finance. Short-term source, comprise of bank borrowings, unsecured loans and deposits, trade credit and misc. current liabilities. It is around 35 per cent of the total sources of finance. 93 per cent of the credit granted to industries by banks is meant for working capital. The analysis of variance of short-term sources reveal that both industry and time are assignable causes of variation of STS. Long-term fund is around 65 per cent of the total fund of the sample companies. Long-term sources comprise of internally generated funds, share capital, debentures, borrowing from financial institutions and borrowing from others. The analysis reveals that internally generated funds contributes a major part (62.85 per cent) of the total long-term sources of finance. It is due to its low cost, accumulated profits and conservative dividend policy. On average, share capital contributes 11% of the total long-
290 term finance. Borrowings from financial institutions by the companies is gaining gradual popularity. This hypothesis that internal funds play a significant role in financing the companies has been examined for the total sample as well as for individual industries. The technique used for analysing the data are relative percentage and analysis of variance. From the analysis of share of internal and external funds, it is observed that the sample companies depended more on external funds, with an annual average of 59.03 per cent of total sources of finance. The less reliance on internal funds (40.97 per cent) by the sample companies can be attributed to its low profitability and high corporate taxation. In all the sample companies, the percentage of internal funds is less than 50 per unit. It is even less than 40 per cent in the companies like General Engineering (35.32 per cent), Food Products (34.47 per cent) and Metal and Alloys (36.04 per cent). Further, the coefficient of variation (C.V.) of internal funds (18.65) is more than external funds (13.27). High C.V. of internal funds indicates that internal funds are less uniform, less consistent and less homogenous in character than external funds. Hence, the hypothesis is rejected. Industry-wise study shows that average contribution of internal fund to total funds is highest in case of Paper & Pulp industries (49.97%) and lowest in case of Food Products industries (34.97%) with a total sample average of 40.97%. It reveals that the traditional industries have used more internal funds by way of accumulated profits and depreciation provision than modern industries. Relative share of retained profits is highest incase of cotton and weaving industries (67.53%) with a total sample average of 52.31%. It again reveals that traditional industries have more accumulated reserves and
291 surplus and hence a good capital base of using retained profits than the use external funds. Relative share of depreciation provision shows that it is highest incase of Paper and Pulp industries (69.17%), followed by Chemical and Paints industries (57.61%), Cement industries (53.08%) with a total sample average of 47.69%. The external sources of finance comprise share capital and debt capital. The average contribution of share capital and debt capital to total sources of finance is 11.86% and 88.14% respectively. The total debt finance is the sum total of long-term debt and short-term debt. In long-term debt finance, funds raised through issue of debenture and borrowing from financial institutions including banks are prominent. Particularly, after 1991, the borrowings made by companies from financial institutions had increased. It is due to liberalisation of economic policy and free role played by AIFIs and absence of any secondary market for debt securities. In short-term sources of fund, bank borrowing for working capital unsecured loans and deposits and trade credit are prominent. The relative share of bank borrowing for working capital in shortterm sources of funds is highest in case of food products industries (42.94%). It is followed by Metal & Alloy industries (42.27%) and Cotton and Weaving Industries (38.31%) with a total sample average of 31.34%. So, in providing short-term funds, banks are playing the key role. The role of creditors in short-term finance is also noteworthy. It is highest in case of General Engineering Industries (54.33%) and lowest in case of Cement industries, with a total sample average of 29.72%. 8.2.6 Financial institutions are important sources of long-term funds. They provide assistance to the corporate sector through rupee loans, foreign,
292 currency loans, direct subscription to shares/debentures, direct re-discounting of bills, equity type assistance/seed capital, equipment leasing, underwriting and guaranteeing of issue of share/debentures, etc. Financing of corporate sector by financial institutions have assumed a fairly systematic and scientific character as they have to pass through certain well established norms. There have been a rapid growth in the volume of assistance given by financial institutions in recent years. This was done to keep pace with the requirements of growing industrial economy. The cumulative assistance sanctioned up to the end of March 1999, reached Rs.5,61,645.8 crores and disbursement reached Rs.3,92,625.5 crores. The disbursement-sanctioned ratio (D/S ratio) increased to about 70 per cent indicating the increasing flow' of financial assistance to the corporate sector of the country. Investment in infrastructural developments largely influence the growth of corporate sector in the country. The cumulative assistance sanctioned by the financial institutions towards infrastructural developments upto the end of March, 1999 is Rs. 131,569.5 crores, out of which Rs.60184.5 crores (45.74%) is sanctioned for electricity generation, Rs.11,908 crores (9.05,%) for telecommunications, Rs.7180.3 crores.(5.46%) for Roads/Ports/Bridges and Rs.52296.7 crores (39.75%) for other services. The amount sanctioned by the financial institutions towards infrastructural development during the post 1990s, is very significant. While the amount sanctioned up to 1990-91 was Rs. 2706.3 crores, from 1991-92 to 1998-99. the same has gone up to Rs.35,126.1 crores. Due to improved and favourable infrastructure is certain parts of the country for setting up companies, Maharashtra has the highest number of Non-Government companies (109,785) and West-Bengal has the highest number of Government companies (107) as on 31st March, 1999. Due to better infrastructural facilities, advanced states like Maharashtra, West-Bengal,
293 Karnataka, Gujurat and Tamil Nadu and Union territories like Delhi, the flotation of new companies is comparatively more than that of other states. Private corporate sector topped the list in the sectorwise assistance sanctioned by All-India Financial Institutions (AIFIs). The amount sanctioned to private corporate sector increased from Rs. 10112.8 crores in 1989-90 to Rs.65368.4 crores in 1998-99. Cumulative assistance sanctioned upto the end of march 1999 shows that Rs.385374.8 crores (80.78 per cent) was sanctioned to private corporate sector. This was followed by public sector Rs.66719.2 crores (13.98 per cent), Joint sector Rs. 19631.9 crores (4.11 per cent) and co-operative sector Rs.5380.6 crores (1.13 per cent). Component-wise assistance sanctioned by AIFIs upto the end to March, 1999 shows that IDBI is the leading institution which has sanctioned Rs.76373.6 crores (43.51%) in the form of rupee loans. In providing foreign currency loans to the corporate sector, ICICI is the pioneering institution. As'on 31st March, 1999, ICICI has alone sanctioned Rs.3,0419.2 crores constituting 58.19% of the total. ICICI has again emerged as the leading institution among AIFIs in subscribing directly in the shares and debentures (26.02%) issued by the corporate sector, in the form of guaranteeing for loans (49.47%) and providing assistance in the form of equipment leasing (60.81%). In underwriting the issue of shares and debentures. UTI has played a prominent role by sanctioning Rs.20951.2 crores (72.19%) of the total. Purpose-wise distribution of assistance shows that new projects continued to receive the largest share (33.76 per cent) of direct assistance from AIFIs. The amount has increased from Rs.6009.8 crores in 1990-91 to Rs.25469.5 crores in 1998-99. It is followed by expansion/diversification (27.55%), modernisation (12.18%) and rehabilitation (0.74%).
294 The development banks, which have been operating in the country for more than forty years and contributed significantly towards the rapid industrialisation in the country, have been facing a number of problems and challenges during the post-liberalisation period. This include high cost of raising funds, increasing non-performing assets, high credit risk, deregulated market environment, and financial dis-interrmediation, etc. All these problems have put the development banks in the cross-roads and restricted their financing operations to the corporate sector. 8.3 CONCLUSION The growth of the corporate sector in an economy largely depends on availability of developed infrastructure facilities, conducive to industrial policy and a well-developed financial market for meeting the various types of financial needs of the companies. The post-liberalisation period in India is marked by a radical change in the policies and programmes of the Government with regard to the growth and financing of the corporate sector. The financial sector reforms encouraged innovations in the area of new financial markets, new instruments, new institutions and new types of financial services. The corporate sector benefitted to a large extent from the above developments. It enabled them to raise huge amount of funds from both domestic and foreign sources, from equity and debt sources and also mobilise the above resources through the issue of a variety of innovative financing instruments. The abolition of the office of Controller of Capital Issues, permission for free pricing of issue and the activisation of the stock market enabled the companies to raise low cost resources without too much of dependence on the Government. It had a direct impact on the financing patterns and debt-equity ratio of most of the companies, while the large
295 industrial units in the modern industries employed on aggressive financing pattern with more dependence on external fund, the traditional industries under conservative management continue with low financial gearing. However, considering the transitional nature of the economy, towards the later part of the 1990s, industries started depending more and more on loans from financial institution, and internal surplus for meeting a major portion of their financing needs. The threat of take over of the companies from MNCs and other predators in the domestic market, influenced to a large extent the equity financing decision of the companies in India. The continued occurrence of different scams in the stock market, a marked slow down to the international and domestic economy and the down grading in the rating symbols of many companies in going to have a major impact on the financing pattern of the companies in future. While the capital market in India has more or less been in a position to meet the genuine long-term financing needs of a majority of companies, the same can be said to be true about the short-term finance in the money market. Further, the absence of an active secondary market for debt securities has severely limited the scope for increasing dependence on debt capital through bonds and debenture. As a result, financial institution in India, inspite of their changing role continue to provide substantial funds both long-term and short-term to the corporate sector. In the coming decade, availability of finance as such may not pose a serious problem for the companies. The problem would be of selecting the right source of funds right price and the right financing mix. This would influence to a large extent the financial risk of the companies, which includes asset liability mis-match risk, interest rate fluctuation risk, forex risk and the default risk.
296 8.4 PRACTICAL UTILITY OF THE STUDY The present study is mostly a fact finding research on the growth and financing pattern of corporate sector in India during 1980-81 to 1997-98. In the course of discussion the various socio-economic and political factors responsible for the low growth in the corporate sector have been analysed. Further various sources - internal, external, short-term and longterm, from which funds have been raised by the corporate sector have also been analysed. The different internal and external factors influencing the trends of the various sources of finance have been discussed. The role of long-term fund in financing fixed assets and short-term fund in financing current assets have been analysed. The role of financial institutions in providing term loans is also highlighted. The corporate sector in India and the Government can make best use of the findings of the study for a better financial management while formulating the industrial and investment policies for a better industrial climate. Since financial structure decisions affect the risk, return and market value of shares, the investors can also get immense help from the findings in order to asses the degree of financial risk involved in their investment and the prospective investors in selecting the best company for their investment which ensures good return and high safety. At last, the findings of the study will be of much help to the financial institutions and Planner and Policy makers who are entrusted with rapid industrial development and economic progress, while formulating their policies and implementing them. 8.5 SUGGESTIONS On the basis of the finding of study, a few suggestion have been listed below which, if implemented, can have a positive impact on the rapid growth of the corporate sector.
297 (1) The financial institution should play a more active role in the primary and secondary market to activate the market. (2) The financial assistance provided by the institutional agencies should include among other products, structured and costomised financial products with a view to reduce the financing cost of the borrower. (3) More number of financial instruments should be introduced in the money market to enable companies to raise a major portion of their short-term finance needs by issue of debt securities. (4) The secondary market for debt securities should be made more active to impart liquidity to the debt securities. If possible, the market making should be introduced more actively by permitting more decades in the market. (5) To minimise the financing risk due to increasing dependence on debt finance, risk hedging techniques should be employed by the corporate sector. (6) To encourage the promotion and expansion of high tech, and high risk companies, more number of venture capital finance companies should be allowed to operate in India and they should be provided with various financial and fiscal incentives to promote their activities. (7) For a more balanced growth of corporate sector and for improving their operating efficiency and financial capability, it is essential that the necessary infrastructure facility and conducive operation environment be created in the otherwise less developed region of the country. (8) The last few years has witnessed the rate of interest being changed by the financial institution on their loan and the rate of interest being offered by the companies on the bond have been gradually reducing. However, when compared with the low rate prevailing in the developed countries, there is an urgent need of further reducing the scams.
298 (9) The Government should permit the Indian companies to access more and more foreign capital and also create a conducive environment for the inflow of more and more FDI into Indian economy. 8.6 SCOPE FOR FURTHER RESEARCH Any research study ordinarily explores only a limited field of knowledge so also the study. There are many aspects which need to be researched further. The findings of the present study may not have universal applicability since the study is confined to a definite period and to a limited section of the companies in India. The coverage of the study can be extended. Hence, further work can be undertaken to bridge the gap by enhancing the scope of the analysis. Data for the purpose of analysis have been collected solely from secondary sources which have their own limitations. In order to arrive at any general conclusion, the hypothesis need further testing by additional information of the same field in different periods and even of different fields in the same period, is yet another area of fruitful research. However, I hope that the analysis and findings presented in this study will act as a base for any further extension in this area.