12.
Explanation
The Indian capital market has made significant progress, but it also faces several shortcomings:
1. Lack of Depth: The market lacks depth, with a limited number of companies listed, especially when compared to the size of the Indian economy.
2. Low Retail Participation: Retail investors’ participation is relatively low due to a lack of financial literacy and awareness.
3. Regulatory Complexity: The regulatory environment can be complex and sometimes cumbersome, deterring investors and companies.
4. Insider Trading and Market Manipulation: These issues can erode investor confidence.
5. Lack of Transparency: The market lacks full transparency, which can hinder investor trust.
6. Inefficient Settlement and Clearing Systems: Delays in settlement and clearing processes can be a deterrent.
Reforms introduced to improve the functioning of the Indian Capital Market include:
1. SEBI Reforms: The Securities and Exchange Board of India (SEBI) has introduced numerous reforms to enhance transparency, investor protection, and corporate governance.
2. Dematerialization: The move towards electronic trading and dematerialization of securities has improved efficiency.
3. Introduction of Derivatives: The introduction of equity and commodity derivatives has expanded the product offerings and attracted more participants.
4. Ease of Access: Initiatives like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have made it easier for retail investors to access the market.
5. Investor Education: Efforts to improve financial literacy and investor awareness have been undertaken.
6. Listing Requirements: SEBI has introduced stricter listing requirements to improve the quality of companies listed on stock exchanges.
7. Market Infrastructure: Improvements in trading infrastructure and settlement systems have been made to reduce delays.
8. Foreign Investment: Liberalization of foreign investment rules has attracted foreign investors to the Indian capital market.
9. Electronic Trading: Increased use of electronic trading platforms has made trading more accessible and efficient.
While these reforms have contributed to the better functioning of the Indian Capital Market, challenges remain, and ongoing efforts are necessary to address the shortcomings and further develop the market.