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Sunday, March 14, 2010

Innovative Financial Reforms


“Innovative financial reforms and open gateway for international funds to come to Indian industry can help the economy come out of the recessionary mode.” Discuss.
The global economic slowdown has shown its negative effects on the Indian economy during the latter half of the previous fiscal. Among the first sufferers were the stock markets and the related corporates.
 
Recent times have been truly testing for the Indian industry, restricting its options significantly. Many industrial houses are finding it difficult to survive the scare of recession. Expansion has stopped and many companies are in the process of cost reduction and restructuring by reducing their manpower. It is time now to provide them with the required support and environment to tide over the turbulent times. It is felt that a set of financial reforms at this point of time would certainly help the industrial sector to experience the upswing and come out of the difficult situation.
 
There is a need to create an Alternative Investment Market where the foreign investors are available and it is known to the Indian companies as to which are the international investors that have surplus funds with them for investment. This would help many Indian companies to access global funds at lower cost, particularly when there is no separate stock exchange in India to facilitate this.
 
Indian government needs to create a fund for restructuring the existing companies that are facing financial stress. Such a fund may provide low cost capital for their restructuring over the medium term. The option of creating a few Asset Reconstruction Companies to take care of the disastrous debt situation in the country may also be exercised by the government agencies. The limit of the FDI in the Indian companies also needs to be raised, so that funds of the developed countries start flowing towards India. Raising this limit to 74 per cent from existing 49 per cent in many industries would take care of the liquidity problem in India. Increased liquidity would not only assist the Indian companies tide over the serious crisis they are faced with, but would also improve the overall investment and liquidity in the economy.

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