The following article from the Hindu Business Line offers some useful insights regarding the growing financialisation of India’s corporate sector.
It shows that in the period of rapid growth during the 2000s, the large corporate sector was flush with funds with which to expand its productive capacity – indeed, it was able to fund its capital expenditure from its savings.
However, instead of using these funds to expand its productive capacity, it diverted a large and growing share of these funds to the financial sphere – as a lender and an investor (or, more bluntly, a rentier and a speculator). The share of funds devoted to fixed assets, plant and machinery actually declined; the share of funds devoted to financial investments spurted. A much larger share of the funds raised from the share market was placed in “liquid assets” – such as shares and bonds – than in capital expenditure.
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