Abstract:
Indian corporate sector has experienced a paradigm shift over the
last two decades with the initiation of certain measures of financial
liberalisation. As a result of these policy changes, the ratio of Indian FDI
outflows to Indian FDI inflows has increased significantly since 2000.
An increasing trend in the purchases of firms or assets abroad is also
observed since 2000, for various reasons. Against this background, an
attempt has been made in this paper to analyse the financing pattern of
Indian corporate sector during 1990-2009. This paper further seeks to
identify the pattern of resource mobilisation of Indian firms acquiring
firms abroad. Indian private corporate sector mobilised large share of
resources through external sources although there is an increasing trend
in the share of internal financing since 2000. Borrowings are the major
source of external financing. Share of resources mobilised through
capital market has sharply declined since mid-1990s. A similar trend is
observed in case of the selected industries as well. Indian acquiring
firms mobilised large funds through external sources although the share
of retained profit was quite substantial unlike in case of the manufacturing
sector. They could also consistently raise resources through capital
market throughout our study period. However, borrowings constituted
the major contributor to external financing. These firms were also raising
resources from abroad and therefore we could argue that it is not primarily
their financial muscles which enable firms to engage in acquisitions
abroad. Revenue foregone through various tax concessions is still found
to be a major source of corporate growth during liberalisation period.
The paper argues that the pecking order theorem does not seem to be
applicable in case of the Indian manufacturing sector. Further, we
conclude that, although stock market development is expected to lower
the cost of capital for Indian corporations, it has not played a major role
as far as the actual resource mobilisation of the Indian manufacturing
sector is concerned. Finally, we argue that regulation by the State through
measures of corporate governance is important in order to create
conditions for a desirable path of growth and development.
