Debt Financing in India in Public, Private and Foreign Companies

Abstract

The objective of this paper is to study and compare the debt financing decisions and practices of the public sector, private sector and foreign controlled companies in India. It also finds out the impact of the liberalized environment, in terms of the significant changes, if any, in the phase-2 (1998-2003) of the liberalized business scenario vis-à-vis phase-1 (1992–1997). The declining trend in the debt ratios suggests that majority of the corporate firms are reducing the preference for debt. The study indicates that the profile of debt financing has significantly changed during the period covered by the study. A notable finding of the study is that there is a shift towards preference for short-term debt as against long-term debt. The economic and financial reforms have caused a significant decrease in the use of debt, particularly long-term, in financing the assets of the sample corporate enterprises in India. Throughout the period of study, ownership control was a significant factor in determining the extent of debt financing. With strong waves of globalization and liberalization sweeping across the world, those firms in India that have lagged behind are required to take a bold initiative to make qualitative changes in their debt financing decisions, if they are to remain competitive in domestic as well as international markets