Abstract:
The role of financial intermediation in promoting capital formation has been stressed in the development process of any economy. This paper examines the role of intermediaries in the Indian context with regard to the financing of the private corporate sector. It finds a strong dependence of the private corporate sector (PCS) on intermediaries in the 1980s and in the early 1990s. An increased dependence on the capital market is observed during 1993-94. The period was also marked by a reduction in their total use of funds for capital formation with a corresponding increase in financial assets. This paper argues that left to intermediaries the neglect of capital formation would not have taken place. The financial sector reforms, which are still underway, need to address issues related to the end use of funds so as to prevent the manufacturing sector from turning speculative.
