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Indian Economic Policy

Notes mechanism within SEBI for leaving penalties and also constitute a separate tribunal to deal
with cases of appeal against orders of the adjudicating authority.
Earlier the SEBI Act provided for the suspension and cancellation of registration and for the
prosecution of intermediaries which led to the stoppage of business. The new system of monetary
penalties constitutes an alternative mechanism for dealing with capital market violations.
4. While investigating irregularities in the capital market, SEBI is now given the power to summon
the attendance of and call for documents from all categories of market intermediaries, including
persons from the securities market. Likewise, SEBI has now the power to issue directions to all
intermediaries and persons connected with securities markets with a view to protect investors
or secure the orderly development of the securities market.
It was thought that SEBI has all necessary powers to control and regulate the securities market on the
one side and effectively protect the interests of the shareholders on the other. However, SEBI failed
miserably to prevent a small coterie of brokers in Mumbai to hammer the SENSEX in March 2001
and in May 2004. The stock markets in India went through one of the worst and most prolonged
crises in their history.

Self-Assessment
1. Answer the following questions
(i) What is the name of the organization that regulates the securities markets in India?
(ii) Stock split increases a companys equity capital: TRUE or FALSE?
(iii) Which of the following investments has the highest liquidity: shares, fixed deposit, closed-
end mutual funds?
(iv) What is the income called as that you receive from a company that it may distribute to its
shareholders from its profits each year?
(v) Stock market investments are ideal for what time horizon: long-term or short-term?
(vi) What is the short form of BSE Sensitive Index?
(vii) If an investor can invest Rs. 1.0 lac or less in an IPO, that investor is categorized as what?
21.6 Summary

• Capital market is the market for long-term funds, just as the money market is the market for
short-term funds.
• The demand for long-term money capital comes predominantly from private sector
manufacturing industries and agriculture and from the Government largely for the purpose of
economic development.
• The Indian capital market is broadly divided into the gilt-edged market and the industrial
securities market. The gilt-edged market refers to the market for government and semi-
government securities, backed by the Reserve Bank of India.
• Since Independence and particularly after 1951, the Indian capital market has been broadening
significantly and the volume of saving and investment has shown steady improvement.
• Soon after Independence, the Government of India set up a series of financial institutions to be
of special help to the private sector industries in the matter of finance.
• The Industrial Development Bank of India was set up since 1947 to provide long-term finance
to industry. IFCI, the SFCs, ICICI, and the Refinance Corporation of India were functioning for
several years provided direct plans, subscribed to shares and bonds and to guarantee loans and
deferred payments.
• The main function of IDBI, as its name suggests was to finance industrial enterprises such as
manufacturing, mining, processing, shipping, and other transport industries and hotel industry.
• In recent years, non-banking finance companies variously called as “finance corporations”,
“Loan Companies”. “Finance Companies”, etc., have mushroomed all over the country.

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