Discuss the sources from which a large industrial enterprise can raise capital for financing modernization and expansion.



Q.2:- Discuss the sources from which a large industrial enterprise can raise capital for financing modernization and expansion.

 

Answer:-

Financial institutions established by the central as well as State Governments all over the country to provide finance to business organizations are considered the most suitable source of financing when large funds for longer duration are required for expansion, reorganization and modernization of an enterprise. These institutions provide both owned capital and loan capital for long and medium term requirements and supplement the traditional financial agencies like commercial banks. In addition to providing financial assistance, these institutions also conduct market surveys and provide technical assistance and managerial services to people who run the enterprises. The various Special Financial Institutions in India are as under.

(i) Industrial Finance Corporation of India (IFCI) It was established in July, 1948 as a statutory corporation under the Industrial Finance Corporation Act, 1948. Its objectives include assistance towards balanced regional development and encouraging new entrepreneurs to enter into the priority sectors of the economy. IFCI has also contributed to the development of management education in the country.

(ii) State Financial Corporation’s (SFCs) State Financial Corporations are established by the State Governments under the Stale Financial Corporations Act, 1951 for providing medium and short term finance to industries which are outside the scope of the IFCI. Its scope is wider than IFCI as it covers not only public limited companies but also private limited companies, partnership firms and proprietary concerns.



(iii) Life Insurance Corporation of India (LIC) LIC was set up in 1956 under the LIC Act, 1956 after nationalizing 245 existing insurance companies. It mobilizes savings in the form of insurance premium and makes it available to industrial concerns in the form of direct loans and underwriting of and subscription to shares and debentures.

(iv) Industrial Credit and Investment Corporation of India (ICICI) this was established in 1955 as a public limited company under the Companies Act. ICICI assists the creation, expansion and modernization of industrial enterprises exclusively in the private sector. The corporation has also encouraged the participation of foreign capital in the country.

(v) Industrial Development Bank of India (IDBI) It was established in 1964 under the Industrial Development Bank of India Act, 1964 with an objective to coordinate the activities of other financial institutions including commercial banks. The bank performs throe types of functions, namely, assistance to other financial institutions, direct assistance to industrial concerns, and promotion and coordination of financial-technical services.

(vi) State Industrial Development Corporations (SIDC) Many State Governments have set up State Industrial Development Corporations for the purpose of promoting industrial development in their respective states. The objectives of the SIDCs differ from one state to another.

(vii) Unit Trust of India (UTI) It was established by the Government of India in 1964 under the Unit Trust of India Act, 1963. The basic objective of UTI is to mobilize the savings into productive ventures. It sanctions direct assistance to industrial concerns, invests in their shares and debentures, and participates with other financial institutions.

(viii) Industrial Investment Bank of India Limited Industrial Investment Bank of India assists sick units in the reorganization of their share capital, improvement in management system, and provision of finance at liberal terms.