ndian inan ial       ar et     11.9
                                                           technology and labour, all being typically
        IndIan capItal Market                              difficult to manage in the case of India. For
     The long-term financial market of an economy is       capital requirement, the government decided
     known as the ‘capital market’. This market makes      to depend upon internal and external sources
     it possible to raise long-term money (capital), i.e., and the government decided to set up financial
     for a period of minimum 365 days and above.           institutions (FIs). Though India was having banks,
     Ceation of productive assets is not possible without  but due to low saving rate and lower deposits
     a string capital market—the market gained more        with them, the upcoming industries could not
     importance once most of the economies in the          be financed through them. The main borrowers
     world started industrialising. Across the world,      for industrial development were the PSUs. To
     banks emerged as the first and the foremost           support the capital requirement of the ‘projects’ of
     segment of the capital market. In coming times        the public sector industries, the government came
     many other segments got added to it, viz.,            up with different types of financial institutions
     insurance industry, mutual funds, and finally the     in the coming years. The industrial financing
     most attractive and vibrant, the security/stock       supported by these financial institutions was
     market. Organised development of capital market       known as ‘project financing’ in India. Over the
     together with putting in place the right regulatory   time, Indian capital market started to have the
     framework for it, has always been a tough task for    following segments:
     the economies. It is believed today that for strong
     growth prospects in an economy presence of a          1. finAnciAl institutions
     strong and vibrant capital market is essential.       The requirement of project financing made India
           Though the capital market of India is far       to go for a number of FIs from time to time, which
     stronger and better today in comparision to the       are generally classified into four categories:14
     periods just after Independence, the process of
                                                           (i) All India Financial Institutions (AIFIs)
     emergnece has not been easy and smooth. Once
     India opted ‘industry’ as its prime moving force,     The all India FIs are IFCI (1948); ICICI (1955);
     the first challenge was to raise long-term funds for  IDBI (1964); SIDBI (1990) & IIBI (1997). All of
     industral establishments and their expansion. As      them were public sector FIs except ICICI, which
     banks in India were weak, small and geographically    was a joint sector venture with initial capital
     unevenly distributed they were not in a position      coming from the RBI, some foreign banks and
     to play the pivotal role they played in case of       FIs. The public sector FIs were funded by the
     the industrialising Western economies. This is        Government of India.
     why the government decided to set up ‘financial            By 1980s, all Indian banks acquired wider
     institutions’ which could play the role of banks      capital base and by early 1990s when the stock
     (till banks gain strength and presence) and carry     market became popular, it became easier for
     on the responsibilities of ‘project financing’.       the corporate world to tap cheaper capital from
                                                           these segments of the capital market.15 The era of
     Project finAncing                                     economic reforms had given the same option to the
     After Independence, India went for intensive          PSUs to tap new capital. As the AIFIs had more or
     industrialisation to achieve rapid growth and
                                                             14.  Industrial Finance Corporation of India Act, 1948,
     development. To this end, the main responsibility            Government of India, New Delhi.
     was given to the Public Sector Undertakings             15.  Ministry of Finance, Economic Survey 2000-01, (New
     (PSUs). For industrialisation we require capital,            Delhi: Government of India, 2010).