ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Capital Market in 21st Century

Stock exchanges as we understand them today may not be there in about two decades. The first major transformation is growing cross-country listings. The other major development relates to mergers and strategic partnership among stock exchanges of different countries. The sum total of these developments will be the emergence of large global exchanges beyond the regulatory purview of any national regulator. One should not thus rule out the emergence of an international organisation such as the WTO for maintaining 'law and order' in the global capital markets.

Risks of Capital Account Convertibility

The experience of the east Asian countries has underscored the dangers of unregulated capital mobility so long as a country does not have the institutions to handle these flows efficiently.

Corporate Investment in 1988-A Forecast

This paper attempts to forecast the growth in private corporate sector investment in 1988. Gross capital expenditure of ail companies in the private and joint sectors is covered here under capital investment. The study also provides a picture of the level and composition of corporate investment in 1987.

Corporate Investment in 1986-A Forecast

A Forecast R H Patil Ranjana Pendharkar This paper attempts to make a forecast of the growth in private corporate investment in 1986. Corporate investment covered here includes gross capital expenditure of all companies in the private and joint sectors. The level and Composition of corporate investment in 1985 is also presented here.

Monetary Reform Some Unresolved Issues

The second supplementary proposition I wish to make pertains to the RBI Committee's expectation that there is "considerable scope for government to tap the savings of the public through an appropriate interest rate structure and offer of a wider spectrum of savings instruments with attractive features" (para 9.38). For reasons already stated, it is neither feasible nor desirable to raise the interest/discount rates on government securities; the bulk of government's borrowing will have to be from the captive market of the commercial banks. But special savings schemes in the form of special bonds or certificates can be devised and made attractive for the general public as for instance are the Six Year National Savings Certificates at 12 per cent interest and fiscal concessions which are of course inequitous. These certificates have proved.popular. For instance, during 1984-85, the subscription to these certificates have amounted to about Rs 2400 crore. Other attractive schemes are possible. An important lacuna is a savings scheme with hedging against possible rise in prices. In the absence of such an instrument, large savings are going into gold and bullion and real estate pushing their prices far above the general level. Hence, there is need for a price-indexed bond. If the government intends to keep the rise in prices under 4 per cent per annum, it will be worthwhile issuing a price-indexed bond bearing 11 per cent rate of interest. If the price rise will be about 4 per cent, the bond will prove as attractive as the deposits with companies. If the rise in prices is well under 4 per cent, the bond may not prove attractive. But that should be considered a success of the monetary and fiscal policies and not a failure of the bond. On the other hand, if the price rise is not contained within 4 per cent, the price indexed bond will prove immensely popular and hence anti-inflationary. Moreover, with such a bond in the market, the government will have a vested interest in keeping the price rise within limits. The bond may be of one year maturity so that, judging by the performance of the prices and the performance of the bond, the rate of interest on it may be revised. The bond may provide an extremely sensitive and useful indicator of the public assessment of the price situation. What is being proposed is an additional instrument with a feature which is presently wanting.

Tax Treatment of Interest Costs and Finance for Industry-Rejoinder

and Finance for Industry Rejoinder R H Patil THE article "Finance For Industry" by M P Chitale (EPW, April 26) is largely critique of the basic theme of my article (September 22, 1979), viz, that the tax deductible nature of interest costs has led to a preference for borraw- ed funds as against reliance on equity. He disagrees with my suggestion totally and puts forth his alternative solution to the same basic problem as to how to bring down reliance on borrowed funds, especially from financial institu- tions, and how to stimulate the equity market, Despite the dissimilarities in our approaches there are surprisingly at least three major propositions on which we appear to hold almost similar views. It is, therefore, interesting that Chitale's solution to the problem should be so much contrary to mine. Before I proceed to offer my comments on the major issues raised by Chitale, let me briefly indicate the areas in which our views are similar so that the task of defending my own position becomes easier.

Tax Treatment of Interest Costs in the Context of Increasing Reliance on Debt Financing

of Increasing Reliance on Debt Financing R H Patil Increasing financial intermediation is normally regarded as desirable because growth of financial intermediaries makes it possible to exercise better social control over the use of society's financial resources. But the type of financial intermediation that has grown in India during the last two decades is not entirely on sound lines.

Emerging Possibilities in India s Bilateral Trade

Emerging Possibilities in India's Bilateral Trade R H Patil India's trade with the USSR and the Centrally Planned East European Countries (CPEECs) is at present based on rupee payments arrangements. However, India's trade agreements with these countries prior to 1958 were in the nature of convertibility currency agreements; and it was the acute foreign exchange crisis that began to be faced by the country when the Second Five-Year Plan was launched that dictated the changeover to rupee trade and payment agreements.

Joint Sector Assessment of SIDCs Role

for their demand for additional concessions and incentives to the sick units and to industry in general. This is wholly in tune with the NAB set' up and its objectives in the new industrial relations framework which has been established after the Emergency.

WORLD TRADE AND PAYMENTS- Growing Disorder

WORLD TRADE AND PAYMENTS Growing Disorder R H Patil THE last five years have been perhaps the most trying period for the world economy in the last three decades. It witnessed the breakdown of the Bret- ton Woods system that had facilitated the integration of the world economy, despite the slow dismantling of barriers to international trade. The period saw the undermining of the supremacy of the US dollar and has been characterised by disorderly floating of currencies and movements of exchange rates. The last five years have also witnessed sharp increase in the unit values of de, the most severe recession in four decades, high levels of unemployment and entrenchment of high inflation rates in most parts of the world.

Behavioural Patterns of US Multinational Corporations

Corporations R H Patil US multinational corporations, which account for well over one-half of the total foreign investment in countries with market economies, truly dominate the economy of the non-communist world.

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