Securities Market Reforms in India - A Big Fish in Financial Sector Reforms

Abstract

In the financial system of any economy, flourishing securities market proves to be the backbone of the market. A well-developed securities market act as a provider of funding for economic activity at macro level and plays the specific crucial roles in an economy like providing the platform for channelizing funds for investment purposes, they also assist in asset pricing and serve as a barometer of the financial health of the economy. The securities market fosters economic growth to the extent it augments the quantities of real savings and capital formation from a given level of national income and it raises productivity of investment by improving allocation of investible funds. The extent depends on the qualitt; of the securities market. In the post-liberalisation era, the Indian securities markets have witnesses Jar reaching reforms especially in terms of technological developments, market design, settlement practices and introduction of innovative instruments. The markets have achieved tremendous stability and as a result of which it has attracted massive investments by foreign players. There is still tremendous scope for improvement in both the equity market and the government securities market. However, corporate debt market needs to be given particular emphasis given its prominence for providing long-term finance for development. The main whim for developing securities markets specially equity and debt segments are dependent upon country-specific histories and majorly the context of the financial system. It relates to creating more financial markets, avoiding banks from taking on excessive credit, diversification of risk in the financial system, financing government deficit, sterilising capital inflows, conducting monetary policy and providing a series of long-term assets. Prior to the early 1990s that is pre-reform era, most of the financial markets in India faced price controlling, entry barriers for new entrants, transaction restrictions, huge transaction costs and illiquidity. A series of reforms were undertaken since the early 1990s in order to develop the various segments of financial markets by phasing out monitored pricing system, enacting institutional framework, eliminating barrier restrictions, introducing new innovative instruments, advancing technological infrastructure and evolving efficient, secured and more transparent financial market practices.