The stockmarket, the financing of corporate growth and Indian industrial development

Abstract In the General Theory, Keynes was stringent in his criticism of the role of the stockmarket in relation to industrial investment and the real economy. In a famous passage, in chapter 12 he wrote:"As the organisation of investment markets improves, the risk of the predominance of speculation does, however, increase. In one of the greatest investment markets in the world, namely, New York, the influence of speculation (in the above sense, ie. 'the activity of forecasting the psychology of the market')is enormous. ... Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done." That was yesterday. Today the stockmarkets are the 'toast of the town' - new ones are being established and existing ones being expanded around the globe, from Kingston, Jamaica to Ulan Bator in Outer Mongolia. The fast expansion of the Indian stockmarkets during the last decade or so, and particularly under the present government's programme of economic reform over the last two years, is therefore a part of a world-wide phenomenon.