The high interest rate regime is unlikely to hit larger companies' ongoing projects, at least for now.

That's because companies are sitting on a pile of cash generated through bumper profits in the last three years and have already tied up financing from banks and institutions.

Data from the 2007-08 annual reports of 758 private sector firms show their cumulative cash position at over Rs 100,000 crore (Rs 1,000 billion), up from Rs 75,000 crore (Rs 750 billion) in 2006-07, most of which is parked in banks and liquid schemes of mutual funds.

This is a conservative estimate since the annual reports of another 500-odd firms are still not available. These 500 firms had a cash balance of Rs 150,000 crore (Rs 1,500 billion) in 2006-07.

Corporate India's expansion and modernisation projects had no funding problems in 2007-08. The 758 firms spent over Rs 105,000 crore (Rs 1,050 billion) on capital expansion in the last financial year, up 40 per cent from 2006-07.

The good news ends here. Going forward, what will hit companies hard is the lack of funding avenues. As a result, new projects may have to be put on the backburner.

For example, companies raised over Rs 300,000 crore (Rs 3,000 billion) in 2007-08 through equity and debt issues. Data on the Prime Database website show that 55 per cent of the funds was mobilised through equity issues, 38 per cent through private placement of debt and 7 per cent through bond issues.

But with the equity market in the doldrums -- equity prices have corrected 40 per cent from their peak January 8 level -- this major source of finance has dried up. Companies have raised just Rs 19,000 crore (Rs 190 billion) so far this year, mostly from debt issues.

Announcements on the Bombay Stock Exchange website indicate that seven companies have lined up Rs 8,000 crore (Rs 80 billion) worth private placement of equity issues and Rs 7,000 crore (Rs 70 billion) worth right issues.

A study by UBS Investment research said the reason for an impending manufacturing and investment slowdown is not so much a problem of top line demand growth, but rising costs squeezing corporate cash flows and thereby delaying investment.

One factor is high interest rates, which has impacted light and heavy industries, sectors that absorb around 47 per cent of commercial bank credit. The leverage of consumer companies is relatively low at 17 per cent.

Meanwhile, global raw materials prices have risen rapidly, magnified by the recent exchange rate weakness. Finally, wage costs have also been a dampener, accentuated by generalised inflation trends and high demand.