Referring to the huge funds requirement in infrastructure developments, the Reserve Bank of India said private-sector participation is vital. It has also called for innovative debt and equity instruments to widen the investor base. The central bank said a transparent regulatory framework must be put in place to usher in an efficient mechanism for risk allocation between the service provider and various entities in this process.

The transition to a competitive system, the Reserve Bank said, would offer new opportunities for growth and new challenges. "The cost of industrial restructuring, which is reflected in growing number of mergers and acquisitions, can be high and have to be made by exploiting the economies ofscale and scope. The pattern of production would have to move in line with market expectations," it said.

It has pointed out that there has been a distinct slowdown in corporate investment as a fallout of industrial restructuring process in certain industries.

The industrial sector logged a comparatively unimpressive performance during 1997-98. This was owing to factors on the domestic as well as the external front. Prime among the domestic factors were low investment in sectors, like transport and power, poor capacity expansion of projects and low utilisation of expanded capacities in projects that had gone in for larger capacities. As far as the external causes triggering industrial slowdown were concerned, poor growth in exports was one of the largest determining factor, the annual report said.

This trend of growth in the industrial sector was lower, compared with the average of the last three years, although it was marginally higher than that of the previous year. This is borne out by the new indexof industrial production (IIP)--which has 1993-94 as the base year--registered a growth rate of 6.5 per cent as against 5.6 per cent in the previous year.

The manufacturing sector, which constitutes 79.36 per cent in the overall index of industrial production, came out with a growth rate of 6.6 per cent, which was marginally lower than 6.7 per cent the year before. Exceptions to this declining trend were mining and quarrying, and electricity generation, which posted higher growth rates of 5.7 per cent and 6.8 per cent during 1997-98 as against significantly lower rates of (-)2.0 per cent and 4.0 per cent respectively for the previous corresponding period.

In the infrastructure sector, the growth in the composite index of infrastructure industries (electricity, coal, salable steel, cement, petroleum crude and refinery products) which has 1980-81 as the base year, was 4.9 per cent during 1997-98 as compared to 3.6 per cent recorded the previous year. While overall production of coal was low, a decline inthe demand for steel has led to lower production during the year.

Companies resorting to M&A route

The year 1997-98 saw considerable activity on the mergers and acquisitions (M&A) front, with around 127 deals fructifying during the year. The corporate sector in India now sees M&As as a means to achieve synergy, economies of scale, better resource utilisation, increased shareholder value and cost-effective expansion.

Industries which witnessed large-scale takeover activity through substantial acquisition of shares were electrical/electronics, finance, agricultural products and pharmaceuticals. Mergers were seen in textiles, steel and engineering, aluminium, diamond, cement, finance and consumer industries. Industries which witnessed takeovers through open offers were computer software, electrical/electronic sectors, fertilisers, finance, agricultural products and heavy engineering.

To impart transparency, fair competition and enhance shareholder value to such activities, the Bhagwati Committeewas set up by Securities and Exchange Board of India. The committee submitted its report in February 1997.