With dwindling investment in new capacities, India Inc is turning to financial investments to pump up its other income.

The other income of 1,350 companies in the manufacturing sector rose to Rs 3,395.76 crore (Rs 33.96 billion) in the quarter ended June 2003, a 21.47 per cent jump over the same quarter a year ago.

At around Rs 3,400 crore (Rs 34 billion), the other income of this sample of 1,350 companies accounted for 18.54 per cent of their total profit before tax. In the quarter ended June 2002, the share of other income in profit before tax was higher at 20.73 per cent.

But the falling share is because India Inc's profits are rising faster than the other income component. In absolute terms, companies are generating record piles of other income.

Corporates are turning increasingly yield-savvy, churning their investments among government securities and various categories of mutual funds. Engineering major Larsen & Toubro's CFO YM Desothalee thinks companies are getting smarter at managing cash, and working innovative deals to earn more.

Adesh Gupta, President and CFO at Indian Rayon says: "A lot of money is being put into gilts and mutual funds. That is an indication that due to the recession, money is not being used to grow capacities. And with companies becoming more efficient in using working capital, surplus funds are leading to increased treasury operations."

Reliance, for example, saw its other income shoot up from Rs 782 crore (Rs 7.82 billion) in 2001-02 to over Rs 1,001 crore (Rs 10.01 billion) last year, aided by a steep rise in interest income from Rs 541 crore (Rs 5.41 billion) in the previous year to Rs 705 crore (Rs 7.05 billion) in 2002-03.

Of Bajaj Auto's Rs 295 crore (Rs 2.95 billion) other income, over Rs 125 crore (Rs 1.25 billion) was from interest income, up from Rs 86.5 crore (Rs 865 million) in the previous year. Of Hindustan Lever's other income of Rs 384 crore (Rs 3.84 billion) in 2003, only about Rs 55 crore (Rs 550 million) came in through dividends, while interest income was over Rs 195 crore (Rs 1.95 billion).

More importantly, taking a cue from the government, corporates are tapping their subsidiaries to disgorge their profits, which accrue to the parent by way of dividends.

As L&T's Deosthalee says, "There is a perception that other income means non-operational income. This is not true. Because of accounting regulations, other income also includes dividend income from subsidiaries, and other core affiliates that are not on the main balance sheet for various reasons. Are earnings from these companies, which are critical in the overall picture, also to be considered as non-operational income?"

Slack industrial activity has caused the significant increase in India Inc's investments in gilts and mutual funds. For example, Hindustan Lever, which had investments of Rs 2,397 crore (Rs 23.97 billion) on its books last year, up from Rs 1,668 crore (Rs 16.68 billion) in the previous year, poured in Rs 1,197 crore -- roughly 50 per cent of its total investment portfolio -- into gilts compared with Rs 482 crore (Rs 4.82 billion) in 2001.

Bajaj Auto, too, invested over Rs 1,000 crore (Rs 10 billion) of its Rs 2,700 crore (Rs 27 billion) investment portfolio into government and trust securities.

"Clearly, corporate India is saving all its cash now, and using it to earn effective returns while waiting for the opportune moment to put it into more effective use," says Indian Rayon's Gupta.