- Capital market plays an important role in a country’s industrial growth. Capital market is the market where long term debt and equity funds are traded. Industries which require capital on a large scale may tap the capital market.
- Therefore, the capital market provides the much needed liquidity into the economy and it gives a big boost to the GDP of an economy as it serves as an effective source of allocation of capital to the Industry and Government.
- The primary role of capital market is to transfer surplus funds to deficit sectors which are in dire need of money. The capital market performs the crucial function of facilitating capital formation in the economy.
- Capital market can be divided into primary market and secondary market. Primary market is utilized by companies for the purpose of setting up new businesses or for expanding or modernizing the existing business. Secondary market provides an opportunity to the company to raise the market price of their shares, thereby enabling them to attract more capital from investors and loans from banks. It also helps the shareholders to increase their wealth.
- However, the contribution of Medium and Small Scale (MSME) in India’s GDP cannot be denied. As per details provided by the Press Information Bureau dated 22nd July, 2014, the estimated contribution of manufacturing sector Micro, Small and Medium Enterprises (MSME) to GDP, during 2012-13, is approximately 7.04%. However, taking into account the contribution of services sector MSME, which is estimated at 30.50% during 2012-13, the share of MSME sector in GDP of the country, during 2012-13, is 37.54%. It has also been observed that MSME sector that provides the highest number of employment opportunities has been hit by severe capital crunch. So, this is an area where immediate measures are required so that necessary capital can be infused to provide much needed liquidity.
- This is urgent because unless the MSME sector will get the much needed capital they deserve, they cannot boost up their production. If production doesn’t get increased, employment generation will not take place. Low employment generation will not raise the standard of living of the people. This will slow the rate of economic growth and development of an economy. The SME Exchange is a welcome move for the Small and Medium Scale Enterprises, but it is alone not enough to revive MSME.
CAPITAL MARKET
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