The Indian capital market played a vital role in saving mobilization in the year 1950. During the period of 1960-1980, the importance of the capital market was diminished and during the same time as a proportion of national income, the domestic savings were increased from 13%- 22%. From the capital market amount fund was raised up to 13% of net domestic saving.
The two reasons for which there was no role in financing in the sector of the industry are:-
1.Developed financial institute and Commercial Bank
2.No one was attracted to the equity
Today the government is more focused on the development of the capital market as a way of mobilizing funds for the public and private sector and stepping towards the concept of “More Market- Orientation”. Indian Capital Market has given us a huge growth in the after linearization. To memorialize this time in the history of our country Narendra Modi made a statement and announced about the “New India 2020”. This New India concept is basically to make our country free from all kinds of anti-social activities. (1)
Keeping aside the positive impact this move will provide an awesome impact on the country. In the field of ethical consent and effectively administrative nation represents the developed economies. The best example is a clear move towards the formal economy.
Fiscal and the Legislative Framework
For the operation of the framework, four types of legislation were provided:-
- Company Act of 1956.
- Foreign Exchange Regulation Act of 1973.
- Securities Contract (Regulation) Act of 1956.
- Monopolies and Restrictive Trade Practices Act of 1969.
Company Act 1956
Company set forth with every detail of the legal function and structure with limited liability, from increase to eventual decrease through liquidation or by merging U.K Bhargava and P.P Bhargava (Enforced Directorate) Company Act 1956 (2).
Foreign Exchange Regulation Act 1973 (FERA)
In the year 1973, the act was passed as a temporary Act. At the time of World War II when the economic condition was recovering from the post effect of the war simultaneously similar legislation was passed throughout the world. Somehow the original Act was made permanent and the FERA legislation was expanded. The Act was introduced in order to have control over the export and import of things like silver, gold, etc. Granting of license on export and import. As everything is under control of foreign exchange different type of bank account were permitted which are listed below :
1.For Non- Residential and Residential
2.Non- Indians and Indians
3.Individual and Corporation
Security Contract (Regulation) Act of 1956
The Securities Contracts (Regulation) Act, 1956 ‘Act’ was passed to discourage undesired trading of shares and to govern the operation of the country’s stock exchanges. The terms of the Act entered into force with effect from 20 February 1957 vide Notice No. SRO 528 of February 16, 1957. This Act basically administrates the trading practice and the stock market, on an exchange buying and selling the contract trade. In all these things the government keeps its privilege to intervene. The Act’s prime provision was as possible:-
- By any number of members of a stock exchange, the government allows the trade security to those exchanges who are specifically recognized by the government.
- The option of any sort like call, straddle, or put is prohibited.
- Out of any issue which is listed, almost least 40% out of the total area in the hand of the public. Foreigners and Non-Indian may not have around 50% of the equity in a company. But an exception to those cases where a joint venture with an offshore partner and or a foreign subsidiary.
Monopolies and Restrictive Trade Practice Act (1969)
This Act was introduced in order to regulate merger and acquisition of different companies to prevent the corporate monopolies and restrict treads. It has been used for license purposes. In order to have control over the expansion and growth of the companies limited under the preview.
Section 2 states that the new research on the capital market as an engine for economic growth provides perfect evidence symbolizing the importance of the stock market for economic development. The things to be traded at a fair price. The perception of New India with the capital market is basically to re-shape it. In 2017 the capital of USD was 2.3 Tn and till the year 2022, it is expected to be 5 Tn. India assures the 3/4th part of the capital market in the world. As advancement in the primary and secondary market commodity of the market, fund management sector, bond market, etc substantial growth is going to give a positive impact. With multiple volumes and high trading value, it is going as the backbone of the secondary market. In the last 5 years at the rate of 15 % compound annual rate, the business issuances have grown. Through the regulatory market, we hope that the bond market will have momentum.
The thing that attracts the foreign portfolio in India is the positive business sentiment combined with the raising of global equity and accommodative liquidity conditions parallel with the USD 22.6 bn. Domestic institutional investors have the mutual fund and under the management of FPI the cumulative equity assert has grown up to 3.6 times in the last 5 years. As compared to 2016 the growth of a systematic investment plan raised by 64% by 2018 and this is because of the increase in the participation of investors in the capital market. But somehow as compared to the developed market then the pocket of retail saving in the capital market is still low so for the future conquering, there is substantial scope. The step taken toward the USD 5Tn is genuine and satisfactory also the county has all the tools with constituent equipment to successfully reach the target.
The steps were taken by the SEBI
SEBI has taken some of the steps to promote the program during 2017-18 and a host of the policies is to give an empowered ecosystem in order to bring up the capital market. Some of the outstanding measures are mentioned below:-
- Fair Market Committee:- This was the committee and this law was passed and constituted under the chairmanship of formal law secretary Mr T.K Vishwanathan and recommended for public comment.
- Corporate Government:- This was constituted in the year 1976 under the chairmanship of Shri Uday Kotak and also approved and recommended by Mr Kotak.
- Amendment to SEBI is to alter the investment fund regulation and revise the framework for non-compliance of listing regulation. The facility of business was provided in the year 2012 in order for the angel funds.
- To facilitate a step for doing business. In an International Financial Service Centre a guideline has been provided for the functioning and development of the security market.
- To take a new initiative to deal with challenges brought by the cybersecurity department to use new technology and data analysis at a marketing place while considering important data privacy requirements.
- For the further development of the secondary market and streamline, security and integrate commodity derives the market. Derived from 1st Oct 2018 to boost up the participation exchanges have been allowed to equity and integrated commodity.
- For better compatibility, if investor schemes like a rational mutual fund and categorize were launched by fund houses.
- The way of a practical and proactive approach to the capital market is genuinely providing a hand to an effective and transparent financial ecosystem. However, we believe that a few more is like an effective regulatory intervention that could be more useful.
Along with Financial Inclusion enabling Innovation
Financial products over the years in India have become a bit sophisticated. There is an increase in liquidity under derivative products. The market size is directly proportional to the different sectors investors and launch of the products such as complex derivatives products, hybrid offerings, etc. We have developed real estate investment trust as a revenue-generating real estate and infrastructural investment trust as infrastructural assert in addition to that given an opportunity to the unitholder and investor to invest without owning. Some amount of continuous innovation we need in order to the fastest growing and large market. In order to reach our targeted goal that is market growth, we need to provide a regulatory framework that will give a facility to the new idea and will give a safety shield.
The other important impact on the capital market of India is Artificial Intelligence. It is now slowly becoming the power boost to the growth path of the economy. Countries like China and India had evidence of adoption of the highest technology that is China with 69% and India with 59%. The government is now more emphasizing new start-up and entrepreneurship such as start-up India, Meity India and new innovative cells in different colleges, etc.
One more area which can help in the development of the economy and financial inclusion is the unbanked population. China is a developing country and one of the largest population and India has the second-largest population and increased population helps in the field of labor and unbanked population.
Like the Netherlands and Sweden, India has a fundamental character that is the stock market and our country is consistent with the market and a price-earnings ratio. The acquired market value is 15 billion US dollars. It is connected to the limited European markets. Our country has launched the liberalization program to open the defence sector to foreign investment.
In order to boost and streamline the effectiveness of the stock market in India, a range of problems needs to be addressed. For now, COCI decides public problems. The problems of new companies are based on the historical data model without considering future earnings potential. The retail price for cleaning is still above the issue price of well-managed companies.
The archaic arrangement can not cope with the rise in the number of treads. It is imperialized for the centralization of the depository system for the function of other markets. Currently, the number of stock exchanges is functionally and organizationally dependent on each other. No apex bodies exist to incorporate their work. The rates vary from quarter to center and promote the speculation. There needs to be a credit rating agency to provide the investor with a reference by differentiating between market participants.
The figure has been computed on the basis of Data provided by Bombay stock exchange.
- S.S Mehta and R. N Honavar. Some aspect of the Indian Capital Market ( Industrial Credit and Investment Corporation of India 1985)
- U.K Bhargava and P.P Bhargava (Enforced Directorate) Company Act 1956 (Bombay India Taxman publication Co. 1982)
- Roy ed. Foreign exchange regulation Act 1973 (Kolkata India, kamal law house publication )
- Government of India, The Security contract regulation Act 1956 (Bombay, India The Stock Exchange 1985)
- Government of India, The Monopolies and Restrictive Trade Act 1968 (Act #54 of 1969)
- The Journal of Developing Areas
- The Expert Voice
- Emerging Stock Market Fact board
- “The expert voice” the author is chairman, FICCI Capital market committee and founder and CEO, Nova Dhruva Capital Pvt Ltd
- Referred from the paper Farida khambata Dara Khambata research paper
- Emerging stock Market Factbook, 1986
BY- Manjushree Pattanayak & Lavanya Rai | ICFAI University Hyderabad