Sources of Capital for Large Scale Industries
The large scale enterprises need adequate funds for purchasing plant, raw materials, machinery as well as for the construction of new factory or the extension of existing ones. The large scale industries obtain both block capital and working capital from various sources which are as follows:
- In India, the large scale industries secure most of their capital through the sale of different types of shares such as ordinary preference and cumulative shares. The shares may be of denomination of Rs. 10 and Rs. 100 each. A large industry may also issue debentures to the public. However, debentures are not popular in our country. The commercial banks are not always granting loans and advances to the large industrial concerns which can float debentures.
- In our country indigenous bankers have also advance financial help to a few large scale industries in the form of both fixed and working capital. However, they provide finance generally to the smaller industry and their rate of interest is very high.
- In India, the large scale industries have greatly depended upon the managing agency system for adequate finance. Till its abolition in 1970, the managing agency system has supplied both fixed and working capital to the large companies. The managing agents have also helped the large sale industrial units in getting loans from the commercial banks and sometimes rescued the industries in time of their financial crisis.
- Another source of industrial finance in India is public deposits. In some states of our country, tea gardens and cotton mills usually raise .funds for their fixed capital by means of deposits from the public.
- The large industries in our country also secure loans and advances from the commercial banks. They grant money against government securities. The commercial banks supply working capital (short term) requirements of large industrial enterprises.