financial market of India and its role in mobilizing the financial and political policy of state

atharmudaththir@gmail.com

Our main purpose is describe the cumulative and comprehensive role of Financial market and its capital market in the economy which proportionately generate many economic benefits and encompasses  higher productivity growth with greater employment opportunities, and improved macroeconomic stability.

The modern nations of world are politically independent but are economically interdependent and continuously accepting the capitalism as medium of economy by most of world nations, which had made capitalism more complex in its nature and operation for maximization of nations wealth and prosperity.

Therefore the financial system of ones nation reflects the essence of nations power and development, which helps in production, capital and economic growth.  The main purpose and strategy of financial system is to ascertain and accumulate saving habit which mobilizes trade,commerce and manufacturing etc.

The system operates in very dynamic and multi modal ways which are directly or indirectly integrated . Thus a financial system is set of institutional arrangements through which financial surpluses are mobilized from units generating surpluses and transferring them to who is need of them.

Financial system enhances and encompasses financial; assets, services,institutions.

But , the growth of financial system and capital market is influenced by various factors which directly state and determine the operations of system which include; house holds and there income, taxation levels and policy of state, economy of state, economic policies, political set up, corporate, trade and commerce.

The strength of economy is calibrated on the basis of GDP, agriculture quantum, demand and supply, BOP balances, import and export,inflation,foreign reserves,investments and growth in capital formation.

Therefore to get a know how about financial system we must endeavor, its function and role in our economy;

a.     Regulates currency of nation.

b.     Provides banking and central bank as FEDERAL RESERVE and RBI.

c.      Performing supply and deployment of currency and funds.

d.     Credit controller.

e.     Administering National, fiscal and monetary policy.

f.       Maintaining liquidity.

g.     Maintaining foreign reserves.

Thus all these functions purport in long run as competitive market with diversified mergers and acquisitions, which facilitate a new instituting foreign influence and equity in market , encourages and provides space for corporate cult to grow as MNC’S with minimal regulatory measures.   Thus one can observe from the past colonial and imperial colonization of west on basis of corporate. It’s so because when a state makes adjustments for some specific corporate and make friendly environment for such,which inversely boosts corporate wealth to grow at very rapid  and large scale and later these are also responsible for support to political parties and help them to come in power ,so that they could serve their interests and deepen their roots in economy and including social and political factors of state.

However ,The development of the capital markets has provided significant benefits to the average citizen also in short run. Most importantly, it has led to more jobs and higher wages, but  de facto world and India is suffering from very high rate of unemployment and the MNC’s are attracted to India for cheap labor force with adequate skills and talent both at academic and professional levels.

Therefore by raising the productivity growth rate, the development of the capital markets has enabled the economy to operate at a lower unemployment rate literally but statistically india is suffering from population bomb and in which 14-30 years of demographic structure consists of about 60% of total population. However the standard of life in india is changing so it was a leveraging for a specified population to earn a higher productivity growth as has led to higher real wages.

The perspective of capital markets expected to reduce the volatility of the economy. Minimize Recessions with less frequent and milder when they occur. As a result, upward spikes in the unemployment could had been prevented and less frequently and have become less severe. But the outcome was inverse in long run.

Broadly, financial system is organized under various constituents of

a.     Financial market

b.     Financial products

c.      Financial institutions and intermediaries

Financial market are the most important constituents of system for which operations are ascertained where allocation of savings to investments are achieved. It consists of two markets capital market and money market

Capital market is a market for financial investments that are direct and indirect claims to capital, it embraces all lending and borrowings including securities market

Effective capital markets require a firm foundation. This includes the enforcement of laws and property rights, transparency and accuracy in accounting and financial reporting, and laws and regulations that provide the proper incentives for good corporate governance. A well developed financial system is a spur to growth, macroeconomic performance, and more rapid growth in living standards. The capital markets is complex of institutions and mechanism by which intermediate and long term funds are pooled and supplied in the trade and commerce including business, governments and individuals also. Capital market is operated by means of stock exchanges which directly refer to as a barometer of the economy and policy of state. For the purpose of growth of economy Government itself serves as an intermediated between corporate and investor.

Thus it raises a question why does state sponsor corporate enlargement, it is directly based on political opportunities on the shoulder of Economy.

But however it strengthens the ties with other nations which protect the sovereignty of state.

It make maximum wealth through global village of globalization.

Represents Indian power and integrity.

Strengthens democratic system of state.

Provides large foreign investments and also disinvestments.

But apart all things and materialism it synchronizes social, economical life of individual which gradually enlarge monopolistic and oligopoly business and makes a space for exploitation of common man, if proper laws are not formulated within time.

‘’ globalization is process of creating rich countries with poor people’’ joseph stiglth

However capital market also encompasses Securities market which is place where claims/obligations,instruments are commonly and readly transferable for sale. Thus it signifies that the capital accumulated by companies is been again traded via secondary medium which is more volatile and non static in nature and make the national pulse to beat and in case it make the economy to kneel down by recession and raise inflation , degrades economy and currency value also.

though  the stock market in non static but the it has proved more wealth maximization as compare to gold standards.

The improved allocation of capital and risk sharing facilitated by capital markets has led to superior economic performance. As the capital markets have become more developed in the UK and the US, the economic performance of these countries has improved. In addition, the gap in the relative performance of the UK/US compared to that of Europe and Japan has widened over time as capital markets have become more dominant in the UK and the US. We find evidence of the superior economic performance in five major respects: (1) higher productivity growth, (2) higher real-wage growth, (3) greater employment opportunities, (4) greater macroeconomic stability, and (5) greater homeownership.

1. HIGHER PRODUCTIVITY GROWTH Over the past decade, the growth rate of labor productivity in the UK and US has increased, and the gap in performance relative to Europe and Japan has widened. The capital markets have played an important role in this process. First, the capital markets helped improve the allocation of capital, thereby raising the average return on capital. Second, the capital markets facilitated the allocation of risk and helped provide a mechanism by which startup companies could raise capital. With respect to the United States, part of the superior performance is due to two factors: (1) the more rapid development and dissemination of technology in the US, and (2) the greater flexibility of the US labor markets. The ability to adjust labor needs quickly means that US firms have greater incentives to rapidly adopt new labor-saving technologies compared to countries where labor markets are more rigid.

In the United Kingdom, labor market reforms and the privatization program initiated by Prime Minister Margaret Thatcher in the 1980s undoubtedly played an important role. After all, during the 1950s, 1960s, and 1970s, the UK economy was in relative decline, despite the existence of comparatively well-developed capital markets.

2. HIGHER REAL WAGE GROWTH Not surprisingly, higher productivity growth accrues to workers in the form of higher real-wage growth. As can be seen, the UK and US performance has tended to improve over time. Moreover, real-wage growth has persistently tended to be higher in the UK and the US than in France, Germany, or Japan.

3. GREATER EMPLOYMENT OPPORTUNITIES At the same time, higher productivity growth and higher real-wage growth have not impeded employment creation in the UK and the US compared to Europe and Japan. Employment growth in the UK and the US has generally been substantially higher than in the European Union and Japan. Moreover, the UK and the US have been able to operate at significantly lower unemployment rates than in the European Union . This stems directly from the superior productivity growth performance. Higher productivity growth allows these economies to operate at a higher rate of labor resource utilization without this tightness generating an increase in inflation. In economists’ parlance, higher productivity growth lowers the non-accelerating inflation rate of unemployment (NAIRU).

But the day may be closer when the whole market will burst and destroy the financial market of world order and return to GOLD standards. As from 1914 from where the global synch of financial market is been enlarged, but history is evident about the failure of all such system and also led cause for even great depression and great war and recessions of 70’s and 2008 in America and includes European recession in 2010 with disaster of Greece, now world is facing more complex threats with advancement of gulf disintegration as Arab spring or winter which had made whole world on the edge and procures a most threat to whole world , we can analyze as Russia and iran is supporting one sect in gulf ,Saudi Arabia has been now threatened to its sovereign right as rise of isis and lack of support from west ,because west has now iran as puppet. Deliberately whole world is getting day by day involved in conflict and simultaneously it leads to mass migrations. It may be not now much time when the world will face 3^rd world war. As per situations of world.

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Writer as a Student of financial system and corporate governance.