ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Finance for Industry Reply

December 27, 1980 Finance for Industry Reply M P Chitale TWO comments have appeared on my article 'Finance for Industry' (EPW, April 17). Patil's rejoinder (June 21) and Bhole's comment (July 19) covering Patil's suggestion as well, proceed from different perspectives, Patil suggested disallowance of interest on borrowings in the belief that, by making borrowed funds almost as expensive as risk capital, supplies of good equities in the market would increase rapidly. In his view, this was a sound way of dissuading companies from relying on borrowed funds, especially from financial institutions and indirectly influencing them, to offer greater amount of equity issues. Bhole looks askance at the very concern for development of the equity market Examining the state of the capital market in respect of debentures, preference shares, and equity, and looking at the behaviour of investors, I commented that Patil's suggestion does not provide a general and adequate solu- tion for the poor response to risk capital. I stated that this suggestion can exercise influence on company management in favour of issuing risk capital (supply of equities). But this is not sufficient, because it does not tend to improve the demand from takers of equities, and therefore, the capital market will continue to remain narrow and sluggish.

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