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Unit-5 Monetary and Financial Resources

This unit discusses these aspects which have a crucial bearing on the flow of monetary and financial resources needed for the development of the economy.

What are the changes in the capital market that have taken place in recent years?





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Written on Jun 26, 2019 3:42:02 PM

Three sets of changes in the Indian capital market can be identified which set the market of the 21st century different from what obtained earlier.

a) Establishment of New Institutions:

The composition of the capital market has undergone a complete change. Till recently, the capital market in India was dominated by Bombay Stock Exchange. The daily turnover on the Bombay Stock Exchange (BSE) alone exceeded the total turnover of all other exchanges put together. The BSE, with its monopolistic share of the market, was an impediment to the spread and diversification of capital market structure. In response to this situation, the National Stock Exchange (NSE) was set up. The NSE has since emerged as the largest exchange of the country.

b) Introduction of New Instruments:

Along with new institutions there have emerged new instruments on the capital market. These encompass both the domestic instruments as also foreign instruments. Despite this, it is argued that there is tremendous scope to deploy new financial instruments connected to equity, debentures, bonds, add-on products and derivatives. 

The initiative on the part of the Indian corporate enterprises to take risks by fine tuning their decision-making mechanisms to suit the investor psychology and market preferences is an important factor which influence the development of these new financial instruments.

c) Changes in the Administrative Framework:

Responding to the changes in the environment, the administrative framework has also undergone a overhaul. The earlier chains have been removed and the capital markets made free to find their own depth and strength. However, it is important to note that in a free market economy whenever chains are removed effective watchdogs or regulatory bodies have to be employed. Such bodies are required not only to ensure proper functioning of the capital market agents but also to ensure other goals of development such as equity, competition and fair play. In India, these functions has been entrusted to the Securities and Exchange Board of India (SEBI).