| Abstract: | This article examines the efficiency of the selective credit policies pursued by the Indian authorities aimed at curtailing inventory accumulation in the sugar industry. Based on the relationship between investment demand and credit availability, a methodology is developed to test the degree of substitutability of different types of credit in the inventory decision of the firm. The tests conducted indicate that the credit policies adopted by Indian authorities have been of limited effectiveness owing to the substitutability of the different sources of finance. The results also indicate that while a correctly designed selective credit policy can affect inventory accumulation, the same policy may have an adverse impact on overall investment of the firm. |
