Globalization and The Indian Capital Market: Keywords

International Journal of Management and Social Sciences Research (IJMSSR)
Volume 2, No. 8, August 2013
ISSN: 2319-4421
Globalization and the Indian Capital Market

Ms. Fiona Jeelani, Assistant Professor, School of Business Studies, Islamic University of Science and Technology,
Pulwama, India
Prof. D. Mukhopadhyay, Dean, College of Management, Shri Mata Vaishno Devi University, Katra, India
Dr. Ashutosh Vashishtha, Assistant Professor, School of Business Economics, Shri Mata Vaishno Devi University,
Katra, India
ABSTRACT
The financial system is a dynamic segment of the countrys
future growth trajectory. It is a well-recognized fact that
efficient, developed and liberalized financial markets can
lead to better economic growth by improving the efficiency
of allocation and employment of savings in the economy.
Ever since the reforms started in the 1990s, the Indian
Capital Market has grown rigorously in financial depth.
But since the global financial crisis in 2007, although
financial assets have surpassed the pre-crisis totals,
growth has languished. Financial Globalization has also
dithered as rapid global capital mobility has been
accompanied by an increased frequency of financial crises
in both the developed and developing countries.
The recent global financial crisis has underlined the
importance of systemic risk due to the interconnectedness
of markets and the need for macro-prudential monitoring
has drawn a lot of attention to the role of regulatory
bodies. Inclusion, growth, and stability are the three
objectives of any reform process, and these objectives are
contradictory. With the correct reforms, the financial
sector can be an enormous source of job creation both
directly as well as indirectly.
In this connection, India has a choice between two
pathways. The first being to retreat the progression
towards advanced financial liberalization. This could
protect the economy from the possibility of volatile
movements of capital that create instability and
substantial constraints upon domestic economic policies in
the future and at the same time hamper the level of growth
as an emerging market. Secondly, to reset to a controlled
level of liberalization where in India can protect itself
against global instability and at the same time can make
its progress towards transforming into a developed
economy. The challenge is how India can learn from past
experience to escalate to the next level of financial market
development, so that it can continue to support the
progression that it faces advancing forward. This paper
traces the level of financial development of the Indian
Capital Market since the reforms, as well as the decline in
growth trajectories after the global crisis, and concludes
that controlled financial liberalization is essential for
sustained growth of the economy.
i-Xplore International Research Journal Consortium
Keywords:
Indian Capital Market, Globalization, Financial Crisis,
Growth, Stability.
INTRODUCTION
Ever since the reforms, in the 1990s, capital mobility had
linked the national financial markets into a more tightly
interconnected Global system. Different forces have
fostered the wave of capital market development and
financial globalization. These forces can be grouped into
three categories: government policies, technological and
financial innovations, and demand and supply-side factors.
(Torre & Schmukler 2007).
In most developing countries, the Stock market
liberalization took place during the period 1985 to 1995
when market capitalization of all emerging markets
increased by 1,007 percent compared to an increase of 253
percent in the case of developed markets. The share of
emerging markets in the world market capitalization
increased from 4 percent in 1985 to 11 percent in 1995.
Similarly, the trading value in these markets increased by
2,189 percent compared to 564 percent increase for the
developed markets over the decade. As a result, the
emerging markets share in trading volume increased by
more than three times, i.e., from 2.7 percent to 8.9 percent
in ten years, signaling significant growth in these markets
(Husain & Qayyum, 2006).
A well-functioning financial market is critical, especially
for emerging market economies (EMEs). India is one of
the five countries classified as big emerging market
economies by the World Bank. This list also includes
Peoples Republic of China (PRC), Indonesia, Brazil, and
Russia. These countries have made the critical transition
from a developing country to an emerging market. The
World Bank has predicted that these five biggest emerging
markets share of world output will have more than
doubled from 7.8% in 1992 to 16.1% by 2020. (World
Bank 1997).
The economic development of a country unvaryingly
depends upon the depth and effective functioning capital
market. A strong and healthy regulatory system is the
prime requirement for the growth and efficiency of any
capital market. Advent of modern techniques and
www.irjcjournals.org
167

information technology in some vital areas of capital

market architecture like trading, payment and settlement,
have given some strength and advantage to Indian capital
market but it still lacks the robustness to compete
effectively with the major international capital markets.
In recent decades, financial globalization took a quantum
leap forward as cross- border capital flows rose from $0.5
trillion in 1980 to a peak of $11.8 trillion in 2007 . But
they collapsed during the financial crisis, and as of 2012,
they remain more than 60 percent below their former peak
(Fig. 1) (McKinsey, 2013)
Figure: 1
The financial crisis resulted from a confluence of leverage,

risk, and deficient regulationand then globalization led
to contagion, which intensified the impact. Policy makers
have begun to adjust their views on the benefits and costs
of financial-sector liberalization and capital account
openness.
As per the macroeconomic policy trilemma for open
economies (also known as the inconsistent trinity
proposition), an open capital market deprives a countrys
government of the ability simultaneously to target its
exchange rate and to use monetary policy in pursuit of
other economic objectives. (Obstfeld & Taylor, 2002).
Consequently there are other negative effects of capital
market globalization which are often so large they seem to
outweigh any benefits in terms of access to more capital
ISSN: 2319-4421
inflows. Financial liberalization of the capital market has

created exposure to an increased propensity to financial
crisis, deflationary impact on real economic activity and
reduced access to funds for small scale producers and also
other social effects in terms of loss of employment and
more volatile material conditions for citizens.
THE INDIAN CAPITAL MARKET

Although the Indian Capital market is approximately 180
years old, yet it is quite young in terms of extent of
globalization and international competitiveness. The
Capital Market is an important protagonist in the process
of mobilization of finance directly from the investor. The
foremost purpose of capital market is to enable allocation
or reallocation of financial resources so as to foster the
economic growth.
Indian capital markets can be traced back to 1830 when
business on corporate stocks and shares in Bank and
Cotton presses started in Bombay. The very first stock
exchange in India, the Bombay Stock Exchange, came into
existence in 1875. The stock markets have had many
turbulent times in the last 180 years of their existence. It
started as an independent body of stockbrokers, which
started doing business in the city under a banyan tree.
Business was essentially confined to company owners and
brokers, with very little interest displayed by the general
public. From 1939 onwards, the trading list widened,
although the number of brokers recognized by the banks
and merchants were very few (only six during 1840-50).
The year 1850 marked a rapid transformation in the
history of the Indian Stock market through a rapid
development of the commercial enterprise and the
brokerage business. This resulted in an increased number
of brokers (sixty) by 1860. The start of the American Civil
War in 1860-61, further increased the number of brokers
from 200 to 250. However, the end of the war resulted in a
huge slump in the securities market and the brokers
continued their transactions in a street (now known as the
Dalal Street). The centrally coordinated planning process
started in India in 1951, with importance being given to
the formation of institutions and markets. The Securities
Contract Regulation Act 1956 became the parent
regulation after the Indian Contract Act 1872, a
fundamental law to be followed by security markets in
India. To regulate the issue of share prices, the Controller
of Capital Issues Act (CCI) was passed in 1947. 1980s
witnessed an explosive growth in the Indian securities
market with millions of investors suddenly discovering
lucrative opportunities.
Table 1 below traces the brief history of the Indian Capital
market.
168

Table: 1
Date
Event
1830
Business on corporate stock & shares in

bank & cotton presses started in
Bombay
1875
The Native shares and stock broker

association was formed
1956
Securities Contracts (Regulation) Act

became parent regulator
1957
BSE granted permanent recognition
1986
Sensex - the countries first equity index

launched
1992
SEBI Act established
1993
NSE was
exchange
1995
BSE On Line Trading (BOLT) system

introduced
1997
BOLT expanded Nation wide
1999
Central Depository
(CDSL) was set up
1999
Interest Rate Swaps (IRS)/Forward Rate

Agreement (FRA) allowed
2000
Equity derivatives introduced
2001
Stock options launched
2002
Fungibility of ADR/GDR
2007
Launch of Unified Corporate Bond

Reporting platform: Indian Corporate
Debt Market (ICDM)
2008
Currency derivatives introduced
2009
BSE Launches BSE StAR MF Mutual

Fund trading platform
2009
Launch of clearing and settlement of

Corporate Bonds
2010
Commencement of Volatility Index
2010
Commencement of Shariah Index
2012
Launch of BSE - SME Exchange

Platform
2013
SENSEX becomes S&P SENSEX as

BSE ties up with Standard and Poor's
recognized
as a
stock
Services
Ltd.
ISSN: 2319-4421
Reforms to capital markets were high on the priorities of

policy makers when India embarked on market-oriented
reforms in the early 1990s. These efforts had several
motivations: the broad idea of markets playing a dominant
role in resource allocation, an awareness of the
opportunity cost that India was suffering by not being
open to global capital flows, and an immediate reaction to
the fixed income and equity market scandal of 1992.
The Securities and Exchange Board on India Act, 1992
(the SEBI Act) came into existence with the primary
objective to protect, develop and regulate the security
markets. Since then, the capital markets in India have
experienced tremendous progress because of the welldeveloped regulatory system in place. An empirical study
by Goel and Gupta (2011) shows that capital market
reforms that started in 1990s contributed to the
development in the stock markets in India. This study has
found significant improvement in the economy after
liberalization. All indicators show improvement in stock
market activities in the post liberalization period. Market
capitalization ratio, value traded ratio, and turnover ratio
have increased. These indicators together with decline in
volatility are an evidence of stock market development in
India.
Although, there are a total of 23 Stock exchanges in India,
the information in table 2 reveals that out of total, the
major trading takes place in just two stock exchanges, that
is, the Bombay Stock Exchange (BSE) and the National
Stock Exchange (NSE).
Table 2: Trading Statistics of Indian Stock
Exchanges(Quantity of Shares Traded)(Lakh)
Source: SEBI report 2012
169

Data from these two stock exchanges, reveals that during

the financial year 2012-13 resource mobilization through
primary market (equity issue) witnessed an upward
movement (Table 3).
Table 3: Resource Mobilization through the Primary
Market
(Rs. crore)
Mode
20092010-11 2011-12 201210
13#
2500
9451
35611
4974
Debt
46736
48654
12857
13050
Equity
Of which
24696
35559
5904
6043
IPOs
Number
39
53
34
20
of IPOs
Mean
633
671
174
302
IPO size
212635 218785 261282 263644
Private
placemen
t
Total
261871 276890 309750 281667
Source: Securities and Exchange Board of India
(SEBI)
Notes:# as on 31 December 2012 (Provisional); the
Equity issues are considered only equity public issues;
The cumulative amount mobilised as on December 2012
through equity public issues stood at Rs.13,050 crore.
During 2012-13, 20 new companies [initial public offers
(IPOs)] with resource mobilisation amounting to Rs.6,043
crore were listed at the National Stock Exchange (NSE)
and Bombay Stock Exchange (BSE) with mean IPO size
of Rs.302 crore. (Economic Survey 2012-13).
India has achieved considerable financial deepening in
recent years, owing largely to the reforms and the foreign
capital the country has attracted. McKinsey (2006) points
out that till 2001, the reforms had not produced much
financial deepening, with the total value of financial assets
never exceeding the GDP by more than10%. Then
deepening started in a major way and by 2004, the total
value of financial assets stood at a respectable 160% of the
GDP which further exploded to 305% in 2007. This
meant a CAGR (Compound annual growth rate) of about
11% between 2001 and 2007. During this period equity
markets showed the most stunning increase (from 23% of
GDP to 165%, a CAGR of as much as 39%), corporate
bonds showed equally remarkable gains but on an
insignificant base (1% to 7.3%; a CAGR of 39%)
(Chakrabarti, 2010). Government securities showed a
relatively moderate rise (27% to 63%; a CAGR of 15%)
while Bank deposits rose at a snails pace (57% to 69%; a
CAGR of 3%).
ISSN: 2319-4421
Financial integration among economies has the benefit of

improving allocation efficiency and diversifying risk.
However the recent global financial crisis, considered as
the worst since the Great Depression has re-ignited the
debate about the merits of financial globalization and its
implications for growth especially in developing countries.
A comparison made by Chakrabarti (2010) shows the
financial depth in India and other Asian countries in 2004
and 2007 respectively. In 2004 Indias financial depth was
among the worst among Asian countries. By 2007, Indias
financial depth was in the median range of the Asian
countries with only China and Malaysia among emerging
markets ahead. The instability in the equity markets since
2007 has shaken these figures but the message of over-all
deepening remains unchanged. Looking at the extent of
financial deepening during the 2004-07 period, India ranks
first among major Asian countries, largely driven by the
gain in the equity markets.
Even though the penetration level of the financial services
sector continues to be extremely low. There needs to be a
rigorous effort to adequately extract the full potential of
Indias savings, which stands at an impressive 34% of the
GDP. As on July 2011, only 1% of households had
invested in mutual funds and a mere 0.72% of households
in equity shares. (India Financial Service Outlook, 2012).
The corporate bond market has remained relatively
underdeveloped. This has been the result of dominance of
the banking system combined with the weaknesses in
market infrastructure and the inherent complexities.
Efficient and developed financial markets can lead to
increased economic growth by improving the efficiency of
allocation and utilization of savings in the economy.
There is a growing body of empirical analyses, including
firm-level studies, industry-level studies, individual
country studies, and cross-country comparisons, that prove
this strong, positive link between the functioning of the
financial system and long-run economic growth.
Specifically, financial systems facilitate the trading,
hedging, diversifying, and pooling of risk. In addition,
they better allocate resources, monitor managers and exert
corporate control, mobilize savings, and facilitate the
exchange of goods and services. (Levine, 1997)
The pressures of financial liberalization are very high as
the economic development of a country unvaryingly
depends upon the depth and effective functioning of the
capital market. A strong and healthy regulatory system is
the prime requirement for the growth and efficiency of any
capital market. Advent of modern techniques and
information technology in some vital areas of capital
market architecture like trading, payment and settlement,
have given some strength and advantage to Indian capital
170

market but it still lacks the robustness to compete

effectively with the major international capital markets.
Indias capital market lags behind those of other
developed and developing markets in financial depth also.
Indian exchanges are somewhat undiversified. Equities
and commodities comprise approximately 90% of trading
volume. Most of the other markets have a much more
diversified mix, with interest rate futures, foreign
exchange futures and corporate bonds accounting for a
large
share
of
exchange
trading.
(http://www.dnaindia.com/)
The need to eliminate financial repression (McKinnon,
1973) is a powerful argument in favor of financial
liberalization. Repressive policies are seen to be
detrimental to financial deepening, in the context of the
observed empirical relationship between financial
deepening and growth. Financial repression is said to have
a depressive effect on savings rates and thereby to result in
capital shortages and adversely affect growth. It is also
argued that financial repression tends to selectively ration
out riskier projects, irrespective of their social relevance,
because interest rate ceilings imply that adequate risk
premiums cannot be charged.
In terms of Financial Development, (World Economic
Forum, 2012) India ranks 40th among the 62 countries
covered in the report, which shows a four-spot decline
from 2011. The financial development index is one way of
picturing the financial market developments.
Some of the findings show that among the components of
this index, India ranks poorly in terms of financial sector
liberalization 58 out of 62. India has shown a slight
improvement in financial stability which ranks the country
at 46. According to the report it is quite clear that, Indias
liberalization could be speeded up.
THE SLOW DOWN AFTER THE GLOBAL

FINANCIAL CRISIS
Ever since the Indian Economy was liberalized, India has
seen a tremendous growth of its capital markets with close
to 5,000 Initial Public offerings (IPOs), second only to the
United States, although the Capital raised was lesser than
other BRIC countries (Desai, 2011). In the year 2010,
India ranked 4th with respect to the amount of capital
raised, contributing to 3.7% of Global IPO share, China
contributed to almost 47% of the Global Capital raised in
IPOs. From 2008 to 2010, the amount raised in IPOs in
China increased by 250%, but in India, there was no
substantial increase. This seemed to indicate that the
Indian Capital Market is losing its growth momentum in
the post crisis financial world and that china is
increasingly becoming popular with respect to attracting
foreign capital. (Ernst & Young, 2011).
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Even though, the Indian equity market has become the

third largest after China and Hong Kong in the Asian
region. According to a report by Asian Development
Bank, as of March 2009, the market capitalization was
around $598.3 billion (Rs 30.13 lakh crore) which is onetenth of the combined valuation of the Asia region. The
market experienced a slowdown since early 2007 and
continued till the first quarter of 2009.
The market capitalization of Indian Stock market can be
traced in figure:2 below and the dip as the result of the
global crisis is quite evident. Later, the market has revived
to an improved level, but the growth rate seen before the
crisis has not yet been attained.
Fig. 2
Source: Standard and Poors (2011)
As figure: 3 indicates, the total foreign investment inflows,
which include both the direct investment as well as the
portfolio investment, have been rising rapidly over the
years. The cumulative Foreign Institutional investors (FII)
investments has raised over six folds since 2001. The
figure shows the zooming growth, which is visible during
the 2004-07 phase, just prior to the crisis and the revival
after the crisis.
Figure: 3
(US $ Million)
Trends in Foreign
Investment Inflows
80000
70000
60000
50000
40000
30000
20000
10000
0
Source: Hand Book of Statistics SEBI (2011)
171

Foreign investments bring the necessary standards and the

pressures of competition that contributes to the efficacy
and growth of an economy. Indian capital markets have to
be assessed for whether the financial apparatus is prepared
to handle the sharp movements of international flows as
convertibility is no longer a twofold choice, but one of
finding the optimal level.
After the shock of the global financial crisis, emerging as
well as developed economies are trying to figure out
whether openness is necessary for a healthy financial
sector. India has a choice between two pathways, as to
how to progress in the future. The two pathways are, either
to retreat from the current position of further liberalizing
the financial sector, which would eventually result in
lower growth, or either to advance forward with
gradually liberalizing but at the same time regulating and
controlling the cross border capital flows. The strong
critique of financial liberalization relates not only to the
enhanced possibility of crises, but to the argument that it
has a clear bias towards deflationary macroeconomic
policies and forces the state to adopt a deflationary stance
to appease financial interests. (Patnaik, 2003).
Emerging economies have long worried that a large
financial sector is a potential hazard, and if fully
liberalized, they curtail further financial market
development. But at the same time, as predicted in a
report, (McKinsey, 2013) by 2020 as emerging economies
account for a larger share of global GDP, their lack of
further financial deepening would reduce the global ratio
by around 25 percentage points. A more conservative
market can hold back the access of the local economy to
much needed expansion capital. Also, a study by Ranciere
et al. 2008, find countries with occasional financial crises
grow faster on an average than those with completely
stable conditions.
The retreat scenario is one which is shaped by a high
degree of risk aversionone that may squeeze the
financing needed for investment in innovation and R&D,
business expansion, infrastructure, housing, education, and
human capital development. As a consequence of the crisis
a reduction in long-term lending to corporations is already
apparent in Europe. In such a scenario, the Indian
economy may face massive investment needs as it gets
urbanized and industrialized, but at the same time may
encounter a shortage of capital. If other developed
Countries follow the same trend they would find
themselves with surplus capital but with too few good
investment opportunities; savers and investors in these
countries could face lower returns.
If the trend of retreat is to be chosen, the value of financial
assets relative to GDP would remain flat or even decline
by 2020. Based on an analysis (McKinsey, 2013) of the
relationship between financing to households and non-
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financial corporations and economic growth, it is

estimated that the lack of financial deepening could
potentially reduce GDP growth by roughly 0.45
percentage points.
The crisis has stressed the need for greater caution and
stability, but unless current regulatory reform initiatives
succeed in restoring confidence, there is a possibility of
excessive caution. This will risk creating a financial
system that fails in its primary purpose that is of providing
a healthy flow of credit to the real economy.
Greater integration of the Indian capital market offers four
principal, and inter- related, benefits: Better allocation of
capital, more efficient risk sharing, enhanced portfolio
diversification and lower cost of capital (Merton, 1987).
Greater participation from Global Institutional Investors
assures greater liquidity and enhanced reputation of the
market, leading to better valuations of companies listed on
Indian Exchanges. In addition, such reforms would also
have additional benefits like job creation in financial cities
of India and exposure to global corporate securities laws.
On the contrary, with completely unrestrained capital
flows, it is no longer possible to control the amount of
capital inflow or outflow, and both movements can create
consequences which are undesirable. It is increasingly
recognized that liberalization can dismantle the very
financial structures that are crucial for economic growth.
A better outcome would involve more sustainable growth
and development of the financial system.
CONCLUSION
The health of an economy is reflected in the performance
of its capital market. Indias economic growth is second
only to China but unfortunately the phenomenal growth
rate has not reflected in the performance of its capital
market. Performance of a nations capital market is not
merely reflected by the performance of its secondary
market and indices of stock exchanges, but also by the
positioning of the market in the global financial sphere in
terms of reputation and existence of foreign companies.
India is among the few countries which were not too
severely affected by the contagion effects of the Global
Financial crisis. The slower and more cautious pace of
financial market liberalization in India is one significant
reason for this. But the short-term debt and the
dependence on volatile capital flow is rising.
Because India (like China) has not liberalized its capital
account to the extent done by many other developing
countries, it managed to avoid or stave off the contagion
that afflicted many East Asian countries in the late 1990s.
However, India did experience a balance of payments
crisis in 1990-91, resulting in it being subjected to an IMF-
172

style adjustment program that heralded the transition from

a creeping process of liberalization that characterized the
1980s to a more accelerated process of economic reform
starting in 1991. Since then, there has been a significant
increase in the inflows of portfolio capital.
Even though, India, like most late industrializing
countries, created strongly regulated financial markets
aimed at mobilizing savings and using the transitional
function to influence the size and structure of investment.
They did it through directed credit policies and differential
interest rates, and the provision of investment support to
the growing industrial class in the form of equity, credit
and low interest rates. India had some higher immunity to
resist the global melt down which started in USA in 2007.
India till now has strictly regulated the market by active
participation of financial regulators.
The possibility of volatile movements of capital has
become one of the most significant issues in developing
countries today. Since rapid movements in and out of a
country creates instability in exchange rates and
consequent problems within the economy. But even more
than that the fear of capital flight has posed substantial
constraints upon domestic economic policies.
It is quite evident that complete financial liberalization
in the sense of implementing all of the various internal and
external measures, is neither necessary nor desirable. In
fact, the more successful developing country have not
implemented such extreme measures. There has to be
some degree of directed credit; and some controls on
cross-border capital flows.
Instead of retreating from the path of liberalizing the
capital markets and external economic integration, India
can advance gradually towards a more open capital
market, but again with controlled policies and regulation
in the areas necessary. It is important for authorities to
continue to maintain some policies that will allow them to
regulate capital flows. Controls on the inflows of capital
are as important as controls on outflows, since sudden
large inflows can be as destabilizing for an economy as
outflows. With the right actions by financial institutions
and policy makers, India can have a balanced approach to
financial market development and globalization that would
support economic growth. Some capital control measures
may be required not only to prevent crises and excessive
changes in the exchange rate, which render the economy
externally uncompetitive, but also to enable the
continuation of domestic financial policies that promote
sustainable industrialization. There is need for improved
macro prudential supervision and mutual confidence and
cooperation among national regulators. While the Indian
capital market would develop more robust financial
systems with sound regulatory architecture in place to
provide stability, foreign capital would also flow in. At the
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same time, a close macro prudential supervision would

watch for potential asset bubbles and dangers associated
with very large current account imbalances. In this
scenario, India can pursue opportunities for sustainable
financial deepening, such as the expansion of corporate
bond markets, which still remains underdeveloped.
Capital-account convertibility accompanied by domestic
prudential regulation will ensure against boom- bust
volatility in capital markets. With completely uncontrolled
capital flows, it is no longer possible for a country to
control the amount of capital inflow or outflow, and both
movements can create consequences that are undesirable.
One persistent theory that warrants to be forgotten is that
greater international trade exposure and trade dependence
necessarily require greater financial integration and both
internal and external financial liberalization. It is a fact
that the most of the successful trading economies have
been those which have somewhat more controlled
financial systems. China is an example, which is a major
exporter and has excessive trade dependence and at the
same time has a financial system which allows the
government to carefully channel credit in desired areas.
The rapid expansion of China does not appear to have
been inhibited by such controlled credit.
Therefore, some government control over the financial
sector remains essential.
For moving towards a more stable financial system, India
will have to consider that openness to foreign investment
and capital flows entails risk, as recent crises
demonstrated, but it also brings clear benefits. Tightly
restricting capital inflows may reduce the risk of
contagion, but it also limits the benefits, such as greater
capital access and competition, that foreign players can
bring to a financial sector. The objective of developing a
competitive, diverse financial sector deserves to be a
central part of the policy plan.
To build the corporate bond markets India must have
standardized rating systems, clearing mechanisms, and a
solid regulatory foundation. Private placement markets are
important for high-yield issuers, and secondary trading
markets for government debt can spur the growth of
corporate bond markets. The policy makers should
promote the development of new financial intermediaries
and instruments aimed at filling gaps for funding of largescale investment projects, infrastructure, and SMEs which
may be in short supply.
As India moves toward liberalizing their capital accounts
over time, they will need to build robust monitoring and
supervisory capabilities. Information flows and market
monitoring need to be improved. Healthier, deeper, and
more open financial markets require more specific and
timely information from market participants. Policy
173

makers need to monitor potential market risks more

closely.
It is essential to consider the capacity of the system to
provide financing for economic growth. Facilitating the
deepening and maturity of financial markets and restoring
more stable international capital flows can ensure that
borrowers have better access to capital, allowing
businesses, governments, and households to invest and
build for the future.
The suggestion is that globalization of the Indian Financial
market should not be stopped but rather careful monitoring
of asset exposures is necessary to get a sense of the degree
of Indias vulnerability to a crisis.
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International Journal of Management and Social Sciences Research (IJMSSR)

Volume 2, No. 8, August 2013