Q.What are the main sources of industrial finance in India?

Industrial finance in India is drawn from owned capital, the capital market, financial institutions and banks, and, since liberalisation, foreign capital.

Industry in India draws finance from a range of sources suited to different needs. Owned capital — the equity contributed by promoters and retained earnings ploughed back into the firm — forms the base of a firm's own resources. Larger firms also raise finance through the capital market, issuing shares and debentures to the investing public via the stock exchanges. Financial institutions and development banks, historically set up specifically to provide medium- and long-term project finance to industry, remain an important source alongside commercial banks, which today provide both working-capital finance and substantial term lending for industrial projects. Public deposits and inter-corporate loans provide an additional source of short- to medium-term finance for some firms. For small-scale and micro enterprises specifically, dedicated credit and credit-guarantee schemes have been developed to help overcome the collateral constraints that make ordinary institutional credit difficult for them to access. Finally, since the liberalisation of Foreign Direct Investment rules under the New Industrial Policy of 1991, foreign capital — through external commercial borrowings as well as direct and portfolio investment — has become an incre …

Students sometimes list only 'bank loans' as the source of industrial finance and omit the capital market and foreign capital, both of which a …