Private sector relies more on external resources: RBI

Mumbai, Nov 17 | Updated: Nov 18 2005, 05:30am hrs
The Indian private corporate sector seems to rely more on the external route for raising funds for financing their business growth. According to a Reserve Bank of India (RBI) study which analyzes the performance of the Indian private corporate sector in the post liberalisation period (1991-92 to 2002-03), the reliance on external sources was more evident in 2000-01 though it was lower during the later part of the study period.

The firms continued to place a greater reliance on external sources for financing the asset formation, however, the reliance was lower during the later part of the period under review. The depreciation provision accounted for the major share of the internal funds generated by the companies. They thrived to reduce the inventory cost by improving their inventory management as reflected by the declining trend in inventory to sales ratio, the RBI study noted.

It also reveals that the financial performance of the private corporate sector as compared to public limited firms were highly impressive as the growth rate in sales and gross profit during the years 1994-95 and 1995-96 over and above the good performance registered during the years 1991-92 to 1993-94.

The buoyant condition in which companies operated during 93-94 and 94-95 facilitated them to earn more profits and declare high dividend to the shareholders. The profitability ratios such as gross profit margin and return on share holders equity were high in 94-95 and 95-96. The effective tax rate was comparatively lower in 94-95 and 95-96 in comparison with other years, it added.