Capital Market In India

The Role of Capital Market in The Economic Development of Anation : -

*INTRODUCTION :~ Capital market is the market for leading and borrowing of medium and long term funds.~ The demand for long-term funds comes from industry, trade, agriculture and government (central and state).~ The supply for funds comes from individual savers, corporate savings, banks, insurance companies, specialized financial institutions and government.~ Capital market has three different categories:-i) Government securities market:^ It is also called Gilt-edged market.^ It deals in interest bearing and dated government securities.^ This market is regulated by the RBI. ii) Corporate Debt Market This market deals in :^ Binds floated by public sector units, nationalized banks and financial institutions.^ Debentures floated by corporates.iii) The Equity Market:^ Corporate raise preference / equity share capital in this market.^ These shares can be sold / purchased and thus provide liquidity to markets.*SIGNIFICANCE:~ A sound and efficient capital market is extremely vital for the economic development of a nation.~ So, the significance of capital market has increased.~ The following points clearly bring out the role and significance of capital market in India. i)CAPITAL FORMATION:~ Capital market encourages capital formation as it ensures speedy economic development. The process of capital formation includes collection of saving effective mobilization of these savings for productive investment.~ Thus three distinctive inter-related activities i.e. collection of savings, mobilization of savings and investment lead to capital formation in the country.~ The volume of capital formation depend s on the efficiency and intensity with which these activities are carried on. ii) ECONOMIC GROWTH:~ Capital market plays a vital role in the growth and development of an economy by channelizing funds in developmental and productive investments.~ The financial intermediaries channel funds into those investments that are more important for economic development.iii) INDUSTRIAL DEVELOPMENT:~ Capital market promotes industrial development and motivates industrial entrepreneurship.~ It provides cheap, adequate and diversified funds for industrial purposes such as expansion, modernization, technological up gradation, establishment of new units, etc.~ It also provides services like provision of underwriting facilities, participation in equity capital, credit-rating, consultancy services, etc.vi) MODERNISATION AND REHABILITATION OF INDUSTRIES:~ Capital markets also contribute towards modernization and rehabilitation of industries.

 ~ Developmental financial institutions like IDBI, IFCI, ICICI, etc provide finance to industries to adopt modern techniques and new upgraded machinery.~ They also participate in the equity capital of industries. v) RIVIVAL OF SICK UNITS:~ Commercial and financial institutions provide adequate funds to viable sick unit to overcome their industrial sickness.~ Bank and FIs may also write off a part of the loan or re-schedule the loan to offer payment flexibility to weak units.vi) TECHNICAL ASSISTANCE:~ The financial intermediaries in the capital market stimulate industrial entrepreneurship by providing technical and advisory services like preparation of feasibility reports, identifying growth potential, and training entrepreneurs in project management.~ This promotes industrial investment and leads to economic development.vii) DEVELOPMENT OF BACKWARD AREAS:~ Capital markets provide funds for projects in backward area and facilitate their economic development.~ Long-term funds are also provided for development projects in backward / rural areas.

viii) EMPLOYMENT GENERATION:~ Capital markets provide Direct Employment in capital market related activities like stock markets, banks and financial institutions.~ Indirect Employment is provided in all the sectors of the economy through various funds disbursed for developmental projects. ix) FOREIGN CAPITAL:~ Capital markets make it possible to generate foreign capital by enabling Indian firms to raise capital from overseas market through bonds and other securities.~ Such foreign exchange funds have a great impact on the economic development of the nation.~ Moreover, foreign direct investments (FDIs) also bring in foreign capital as well as foreign technology that leads to greater economic development. x) DEVELOPMENT OF STOCK MARKETS:~ Capital markets lead to development of stock markets by encouraging investors to invest in shares and debentures and to trade in stocks.~ FIIs are also allowed to deal in Indian stock exchange. xi) FINANCIAL INSTITUTIONS:~ Financial institutions play a major role in capital markets.

~ They provide medium / long term loan to industrial and other sectors and also undertake project feasibility studies and surveys.~ They refinance commercial banks and rediscount their bills of exchange.~ They provide merchant banking services.~ They subscribe to equity capital of the firms.xii) INVESTMENT OPPORTUNITY:~ Capital markets provide various alternative sources of investment to the people.~ People can invest in shares and debentures of public companies and earn good returns. xiii) INVESTMENT IN INDUSTRIAL SECURITIES:~ Secondary market in securities encourage investors to invest in industrial securities by providing facilities for continuous, regular and ready buying and selling of these securities.~ This facilitates industries to raise substantial funds from various sectors of the economy.xiv) RELIABLE GUIDE TO PERFORMANCE:~ Capital market serves as a reliable guide to the performance of corporate institutions.

~ It values companies accurately and thus promotes efficiency.~ This leads to efficient resource allocation and economic development.*CONCLUSION:~ Thus we can say that capital markets play a crucial role in the economic development of a nation.~ A sound and efficient capital market is one of the most instrumental factors in the development of a nation