Importance of Capital Market in India

importance of capital market | what is capital market | what is capital market and money market

The capital market plays an important role in the development of industry and commerce in any country. Professor S.C. Kuchhal According to, “It consists of a series of channels through which the savings of the community are made available for industrial and commercial enterprises and public authorities.”


Therefore, the importance of the capital market in the expansion of the country’s industry and commerce is immense. For example –


1. Help in the Establishment and Expansion of Industry and Commerce:

Industrial and commercial establishments require fixed capital for establishment, expansion, and maintenance. Capital markets provide all these necessary funds. However, as the nature of the companies in this market is different, their working methods are also different. For example, although the stock market included in the capital market does not directly provide capital, they facilitate the investment of capital in business by creating the opportunity to buy and sell shares, debentures, and government bonds. Therefore, the importance of the capital market in the establishment or expansion of the country’s industry, and business is immense.


2. Motivation to Savings:

There are many experienced brokers in the capital market. These brokers provide valuable advice to prospective investors on investing in profitable sectors. Thus, this market encourages citizens to save by creating opportunities to invest in various profitable investments.


3. Supply of Loan-Capital:

Long-term loans are generally required for industrial expansion. Only the capital market can meet this long-term debt problem. Currently, due to the expansion of the capital market, even small investors can enter this market. For which the capital market has huge importance in raising a large part of the country’s savings as capital.


4. Proper Utilization of Resources: 

Expanded capital market activity leads to competition in industry and commerce. This competition helps in building alliances. As a result, small inefficient firms cannot survive and only efficient companies can use the country’s resources efficiently.


5. Create Ready Market:

Investments are regularly traded in the capital market. If the investor is not able to collect money by selling the investment, then he does not feel motivated to invest. On the other hand, if there is no opportunity to buy an investment at the right time, the investor feels disappointed. Capital markets satisfy the needs of both buyers and sellers by creating a liquid market for investment securities.


6. Advisory Functions:

Investors don’t always understand profitable sectors or profitable investments. There are many skilled and experienced brokers in the capital market, who can help investors with investment advice. Not only that, but the members of the capital market also advise on legal aspects or management related to buying and selling of shares.


How developed a country’s economy is, we can understand from the working dynamics of the capital market. Therefore, the importance of the capital market in the financial development of the country is immense.

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