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In a mixed economy, like India, efficient and effective implementation of socioeconomic model of industrial policy leads to rapid economic growth and development. Public Sector Enterprises (PSEs) in India have been incurring losses due to their inefficient utilization of productive capacity. This has led to a slow and inadequate rate of economic growth in the country. Judicious blending of fixed capital and working capital and their effective utilization ensures better productive capacity, good profitability and sound liquidity of the enterprises, which are required on the part of the enterprises to earn sufficient surplus for their growth and to maintain their perpetual succession in the present competitive and changing environment. Public enterprises, so far, have given emphasis on growth and efficiency of fixed capital neglecting effective management of working capital, which is not desirable. Though performance of PSEs is progressively low, investment in those enterprises in India has been growing up significantly since 1950s. This indicates the positive attitude of the government towards generation of greater employment opportunity for the vast population of the country by establishing more and more PSEs along with higher blockage of fund following the traditional production function approach whereby fixed capital is considered as one of the explanatory variables to establish the relationship between output and profit ignoring the role of working capital. In the wave of globalization and economic liberalization, growth and survival stability of the enterprises largely depend on the effective management of working capital, which has a direct bearing on the economic well-being of the country as a whole. Thus, it is felt that there is a need to manage various components of working capital in such a way that an adequate amount of working capital is maintained for smooth running of the wheel of an enterprise for the fulfillment of twin objectives of liquidity and profitability as well as for reducing non-insurable risk and uncertainty bearing associated with the volatility of various components of working capital in the firm's operating environment. Empirical studies show that ineffective management of working capital is one of the important factors causing industrial sickness (Yadav, 1986). A company should choose between liquidity and profitability and decide about its working capital requirement (Vijay Kumar and Venkatachalam, 1995). Modern financial management aims at reducing the level of current assets without ignoring the risk of stockouts (Bhattacharya, 1997). A firm should formulate certain policies to control the working capital so as to meet financial distress, which
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