Question

Explain the recent Capital Market reforms in India.

Answer 1

A capital market refers to the market that deals in the trading of medium and long-term securities. That is, it deals in those securities that have a maturity period of greater than or equal to one year. Capital market comprises of instruments such as equity and preference shares, debentures, bonds, mutual funds, public deposits, etc. A capital market can be divided in two parts namely, Primary Market and Secondary Market. Primary market deals with issue of new securities. Issue of new securities in the primary market directs funds towards those entrepreneurs who either want to start a new enterprise or wish to expand the existing one. Secondary market, on the other hand, deals in the sale and purchase of the existing securities. That is, it deals in the trading of those securities that were initially issued in the primary market.

The history of capital market in the form of stock exchange dates back to the eighteenth century. The Government of India introduced the Companies Act in 1850 with the aim of generating investor interest in corporate securities. The first stock exchange was set up in India in the year 1875 as 'The Native Share and Stock Brokers Association' in Bombay. Later it was renamed as 'Bombay Stock Exchange' (BSE). In the subsequent years stock exchanges were developed in Ahemdabad, Calcutta and Madras.

In 1990s, the Indian secondary market only consisted of regional stock exchanges wherein, first being the BSE. However, after the reforms of 1991, the Indian Stock Market acquired a three-tier system. This consisted of Regional Stock Exchanges, National Stock Exchange and Over the Counter Exchange of India (OTCEI).

Regional Stock Exchange

The first Regional Stock Exchange was developed in Ahemdabad as Ahmedabad Stock Exchange (ASE) in 1894. Similarly, in 1908, Calcutta Stock Exchange (CSE) was established. Subsequently in the later years other regional stock exchanges were established in Calcutta, Madras, Ahemdabad, Delhi, Hyderabad and Indore. Recently, regional stock exchanges were developed in Coimbatore as Coimbatore Stock Exchange and in Meerut as Meerut Stock Exchange.Currently, there are 22 regional stock exchanges in India.

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Answer 2

There have been number of reforms that are introduced by the government  for bringing in changes and improve the working of the capital markets.

Explanation:

• The recent changes in the capital markets have been initiated by the government to regularize the working of capital markets. The reforms initiated were liberalization of economic trading, deregulation of the industries, globalization of trading in goods and services and more.
• The government has appointed agencies to monitor the working of markets and also increased the function of the commercials banks for the work of merchant banking. The Securities and Exchange Board of India is appointed to monitor the working of the  capital market
• The various financial reforms that have been initiated with the foreign exchange policies and through other structural policies have recently changed the capital markets.  Increase in the activities of merchant banking have proved helpful in the reforms of the capital markets

To know more about capital markets

Define capital Market. Explain the constituents of Indian capital market.​

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