~ 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. *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 mobilisation of these savings for productive investment. ~ Thus three distinctive inter-related activities i.e. collection of savings, mobilisation 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 channelising 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, modernisation, technological upgradation, 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 modernisation and...