It goes without saying that the capital market is the barometer of a country’s economic environment. That is to say, the movements of the industrial-security prices will indicate the profile of industrial activities.
The prices of securities will shoot-up with economic prosperity if such prosperity is mainly engineered by industrial activities; if the growth potential fails to keep pace prices of the securities would tumble.
The new Indian economic policy was announced in 1991. This policy has completely changed the complexion of our economic philosophy. Prior to the announcement of this new economic policy the Indian capital market, with a few exceptions, constantly showed a depressed mood.
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As a matter of fact, the capital market has best established itself as shy in the process of siphoning capital into the industrial operations. Thus the industrial growth was conspicuously low and this resulted in the stagnation in the economy.
To rescue economy from this plight the philosophy of free market economy was advocated by the government through its new economic policy. This policy emphasises the role of the private sector, minimising the constraints of a regulated economy and a major role to be played by the public sector.
Naturally, the new policy inspired the industrialists to reap the harvest by utilising the capital and money market by maneuverability.
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With a view to amassing a large fortune easily, exploiting the acceleration of the economic transition set in with the announcement of the new economic policy, the stock brokers made their way into the capital market, expecting industrial boom in such a way that the scam had to break out. This contention can be corroborated by the periodical market index.
Prior to the announcement of the 1992-93 budgets, the Bombay stock exchange index recorded 2830.9 points and it struck at 3547 points on March 9, 1992 reaching a level that crossed 4000 points an all time high level prior to the busting of the scam.