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FFD - Final

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Devanshi Pathak

Three factors have contributed to the new dominance of internal sources of finance in India: 1) increased corporate surpluses from higher sales and productivity, 2) lower interest rates reducing costs, and 3) fewer tax deductions. This has left more cash for corporations to expand and modernize. Private placements are expected to dominate new equity issues since many Indian firms remain unlisted. If foreign capital suddenly surges into equity markets, valuations may rise and capital could flow to unlisted firms, limited only by government investment policy caps. The document discusses potential new development finance sources for India including multilateral agencies, commercial banks, venture capital/private equity, and further domestic capital mobilization through cooperation between civil society, judiciary and government.

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Financing For Development - India Final Project Submitted by – Devanshi Pathak
New Sources of Development Finance in India • Factors explaining the new dominance of internal sources of finance, three are of importance. First, increased corporate surpluses resulting from enhanced sales and a combination of rising productivity and stagnant real wages (Chandrasekhar 2013). Second, a lower interest burden resulting from the sharp decline in nominal interest rates, when compared to the 1980s and early 1990s. And third, reduced tax deductions because of tax concessions and loopholes.These factors have combined to leave more cash in the hands of corporations for expansion and modernization. • The dominance of private placement in new equity issues is to be expected since a substantial number of firms in India are still not listed in the stock market.On the other hand, free-floating (as opposed to promoter-held) shares are a small proportion of total shareholding in the case of many listed firms. Source: https://in.boell.org/sites/default/files/uploads/2014/03/development_finance_in_india.pdf
New Sources of Development Finance in India • If there is a sudden surge of capital inflows into the equity market, the rise in stock valuations would result in capital flowing out of the organized stock market in search of equity supplied by unlisted firms.The only constraint to such spillover is the cap on foreign equity investment placed by the foreign investment policy of the government Source: https://in.boell.org/sites/default/files/uploads/2014/03/development_finance_in_india.pdf
Other Potential Sources of Development Finance Multilateral Agencies Growing Commercial Banks Role of Venture Capitalists and Private Equity Civil Society, Judiciary and Government work in Unison Further Internal Mobilization of Capital Source: https://in.boell.org/sites/default/files/uploads/2014/03/development_finance_in_india.pdf

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FFD - Final

  • 1. Financing For Development - India Final Project Submitted by – Devanshi Pathak
  • 2. New Sources of Development Finance in India • Factors explaining the new dominance of internal sources of finance, three are of importance. First, increased corporate surpluses resulting from enhanced sales and a combination of rising productivity and stagnant real wages (Chandrasekhar 2013). Second, a lower interest burden resulting from the sharp decline in nominal interest rates, when compared to the 1980s and early 1990s. And third, reduced tax deductions because of tax concessions and loopholes.These factors have combined to leave more cash in the hands of corporations for expansion and modernization. • The dominance of private placement in new equity issues is to be expected since a substantial number of firms in India are still not listed in the stock market.On the other hand, free-floating (as opposed to promoter-held) shares are a small proportion of total shareholding in the case of many listed firms. Source: https://in.boell.org/sites/default/files/uploads/2014/03/development_finance_in_india.pdf
  • 3. New Sources of Development Finance in India • If there is a sudden surge of capital inflows into the equity market, the rise in stock valuations would result in capital flowing out of the organized stock market in search of equity supplied by unlisted firms.The only constraint to such spillover is the cap on foreign equity investment placed by the foreign investment policy of the government Source: https://in.boell.org/sites/default/files/uploads/2014/03/development_finance_in_india.pdf
  • 4. Other Potential Sources of Development Finance Multilateral Agencies Growing Commercial Banks Role of Venture Capitalists and Private Equity Civil Society, Judiciary and Government work in Unison Further Internal Mobilization of Capital Source: https://in.boell.org/sites/default/files/uploads/2014/03/development_finance_in_india.pdf