Exchange benefits

The Indian financial sector has lagged behind the rest of the economy as a means to raise funds to maintain a trend GDP growth rate of 8 per cent per annum. Since interest rates too are higher in India than in comparable economies,the combination of shallow liquidity and high rates has encouraged a raft of companies to move their financial requirements overseas. In the calendar year 2010,before the economy tumbled,the total primary issue was only Rs 48,654 crore. Compared with an aggregate bank credit of Rs 35,82,048 crore,this looks paltry and shows the extent to which the Indian economy depends on the latter. This asymmetry needs to be addressed.

To the extent that the new exchange is able to make retail investors come in to trade and small enterprises to list,the depth of the markets will improve. But before that,the promoters of the new exchange will need to show that they will follow the spirit and letter of the Sebi licence to instil best practices. As the rule stands,promoter groups have to keep their holdings in the exchange within 5 per cent of the total equity. This is the understanding with which MCX-SX has been given the licence,after a long court battle,which must be respected.

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