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APEEJAY SCHOOL OF MANAGEMENT
A

ASSIGNMENT

ON

CAPITAL BUDGETING PRACTICES OF INDIA

SUBMITED TO

MR. I.K KHAN

SUBMITED BY

SHAMBHAWI SINGH
PGDM (General), Roll No- 83, Section-B
Apeejay Institute of Technology - School of Management
1, Institutional Area, Knowledge Park-I,
Surajpur Kasna Road
Greater NOIDA, U.P.
CAPITAL BUDGETING PRACTICES OF
INDIAN
Objective
The objectives of this study are:
(a) To document the capital budgeting policies and practices
of companies in India, a developing Country, and contrast
them with those of USA and UK, the developed Countries.
(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.
The study relates to 1984.

Capital Expenditure:
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
The Indian practice is also influenced considerably by
accounting conventions and tax regulations. Large
expenditures on items such as research and development,
advertisement, or employees training, which tend to create
valuable intangible assets, are generally not included in the
definition since most of them are allowed to be expensed for
tax purposes in the year in which they are incurred.
As many as ten sample companies followed the accounting
convention to prepare asset wise classification of capital
expenditures which Is hardly of any use in decision-making
three company’s classified Capital expenditures in a manner
which could provide useful information for decision-making.
The classification was in terms of capital expenditures for:
Replacement
Modernization
Expansion.
New projects
Research and development,
Diversification
Cost reduction.
Expenditure Planning Phases.
We have identified five phases of capital expenditure
planning
And control:
(1) Identification or origination of investment opportunities,
(2) Development of forecasts of benefits and costs
(3) Evaluation of the net benefit
(4) Authorization for progressing and spending capital
expenditures, and
(5) control of capital projects.
The available literature emphasizes the evaluation phase.
Two reasons may be attributed to this bias. First, this phase
is easily amenable to a structured, quantitative analysis,
second, it is considered to be the most important phase by
academicians. Practitioners, on the other hand, consider
other