Management J. Volume 2 No. 1 (January 1989)

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CAPITAL BUDGETING PRACTICES OF INDIAN COMPANIES
I. M. PANDEY

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Objective

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The objectives of this study are: (a) to document the capital bud geting policies and practices of companies in India, a developing country, and contrast them with those of USA and UK, the developed countries, and (b) to ascertain how business executives look upon the linkage between corporate strategy and investment decision-making. Capital expenditure planning and control is a process of facilitating decisions covering expenditures on long-term assets. Since a company's survival and profitability hinges on capital expenditures, specially the major ones, the importance of the capital budgeting process cannot be over-emphasized.
Sample and Methodology

We have followed an intensive interview-cum-questionnaire method. Two questionnaires—one dealing with investment evaluation practice and second with other phases—were sent to companies which had agreed to participate in the study. In all, 14 companies were studied. The responding companies belonged to different businesses. In terms of size (sales and number of employees), capital intensity (net tangible fixed assets), volume of spending (capital expenditure incurred), and level of technology, they represent a variety (Table 1). The study relates to 1984.
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Capital Expenditure: How Defined Strictly speaking, capital expenditure includes all those expenditures which are expected to produce benefits to the firm over more than one year, and encompasses both tangible and intangible assets. In practice, most sample companies followed the traditional definition, covering only expenditure on tangible fixed assets. *•

Capital Budgeting Practices of Indian Companies

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The Indian practice is also influenced considerably by accounting conventions and tax regulations.