The long-term financial market of an economy is known as the ‘capital market’. This market makes it possible to raise long-term money (capital), i.e., for a period of a minimum of 365 days and above. The creation of productive assets is not possible without a strong capital market—the market gained more importance once most of the economies in the world started industrializing.
Across the world, banks emerged as the first and foremost segment of the capital market. In the coming times, many other segments got added to it, viz., the insurance industry, mutual funds, and finally the most attractive and vibrant, the security/stock market. Organized development of capital market together with putting in place the right regulatory framework for it, has always been a tough task for the economies. It is believed today that for strong growth prospects in an economy presence of a strong and vibrant capital market is essential.
Though the capital market of India is far stronger and better today in comparison to the periods just after Independence, the process of
emergence has not been easy and smooth.
Once India opted ‘industry’ as its prime moving force, the first challenge was to raise long-term funds for industral establishments and their expansion. As banks in India were weak, small and geographically unevenly distributed they were not in a position to play the pivotal role they played in the case of the industrializing Western economies.