Private Corporate Investment and Deployment of Funds:(Some Recent Trends)

Economic liberalisation is based on the premise that competitive pressures would ensure productive use of resources. This depends on the extent to which savings are translated into productive investment. The liberal policies initiated during the eighties in India resulted in higher growth of the private sector. From 1983-84, the private corporate sector (PVCS) started to rely on the capital markets for funding. Stock prices also continued to increase. However, from the mid-eighties, companies started to deploy funds back into financial assets mainly due to the widening differential between returns on financial to fixed assets. Thus, a large proportion of funds found their way back into the capital markets. Consequently, financial incomes, in proportion to total income grew dramatically. The study notes that in a growing economy, time-lags in the deployment of resources is natural. Nevertheless, it warns that excess reliance on treasury activities by manufacturing companies can result in economic distortions and disrupt the process of investment. In sum, the findings suggest that even when the private sector is left to operate on the basis of market signals, public policy has still a role to play.