The public sector has played a dominant role in the overall process of economic development in India. The Public Enterprises (PEs) have grown in all the areas and contributed heavily to the industrial development. With the introduction of New Economic Policy in 1991, the government policy on PEs has been revamped and PEs have been provided with autonomy along with accountability and responsibility. In the light of the same, financial management in PEs has attracted lots of prominence in general and capital structure decisions in particular by the managers at the PEs. This paper is an attempt to understand the capital structure policies adopted by the profit making Central Public Enterprises and the study has been conducted for the period 199495 to 200405. To compare and contrast with the private enterprises capital structure policies, a comparative study has been made for the same period with enterprises of similar industries in the private sector. The capital structure policies deal with aspects like the proportion of debt and equity to finance the company's operations in terms of internal funds visàvis external funds. It is found that the tangibility of assets plays a significant role in determining the leverage of the PEs, the results for NDTS and TAX, infering that the PEs are not utilizing debt to pay less tax, instead using their internal resources for the PEs in expansion and financing. The PEs are mobilizing longterm resources for meeting shortterm requirements. It can be concluded that the PEs are using pecking order theory in terms of adapting to the capital structure policies.

Public Enterprises (PEs), since their inception, have played a dominant role in the economic development of India as envisaged by the then policy makers. The Industrial Policy Resolution (IPR)-1956 has enabled the PEs to establish their
dominance in the basic and strategic industries like coal, petroleum, steel, non-ferrous metals, heavy engineering, etc., and a substantial presence in industries like machine tools, fertilizers, basic and intermediate chemicals, drugs, etc. Given the objective of socialistic pattern of society and the need for planned and rapid development, the objective of the IPR-1956 was to have all basic and strategic industries and public utilities in the hands of the government through the public sector. The PEs have become the primary mechanism through which the planners have implemented developmental policies in India.

Accordingly, investment in Central PEs has grown from a mere Rs. 29 cr in five enterprises to Rs. 3,33,475 cr by the year 2003. In spite of the phenomenal growth, the performance of the PEs has remained unsatisfactory, particularly in terms of their contribution to the generation of resources and financial profitability. The rationale of the operation of PEs and the expectation that the management should be run on commercial and business lines to earn profits and contribute to the revenues of the state, that they should be judged for their total results and subject to these performance criteria they should have full freedom of operation, were set out in the IPR-1956.

Applied Finance Journal, Capital Structure, Public Enterprises, Financial Management, Bureau of Industrial and Financial Reconstruction, BIFR, Weighted Average Cost of the Capital, WACC, Capital Structure, Financial Innovations, Debt-Equity Choice, Cash Flow Ability Approach.