In the present paper the determinants of external finance in Indian Iron and Steel Industry are being investigated in the framework of principle of increasing risk as proposed by Kalecki (1937). The explanatory variables considered for the study are flow of net debt, retained earnings, profit after tax, sales change variable and inventory investment. This paper used the data of public limited companies, which are non-governmental and non-financial, for the period 1999-2000 to 2010-11. The model has three specifications in which time series, cross section and pooled data is employed for estimation using ordinary least squares method. The results of the three above mentioned analyses, revealed the importance of external finance as a determinant of fixed investment in Indian iron and steel industry. Appropriate monetary and financial policies are thereby called for to strengthen the accessibility of finance by the companies under the industry. The influence of accelerator, profit after tax and retained earnings on fixed investment expenditures of the industry is found to be weak.

JEL classification numbers: E22, G31

KEYWORDS: External finance, Fixed investment, Flexible accelerator