Indian Capital Market Reforms, 1992-96-An Assessment

An Assessment Subir Gokarn This paper uses a conceptual framework that draws on the theory of regulation on the one hand and the new political economy on the other to make an assessment of the wide-ranging reforms that have been initiated in the Indian stock market over the past four years. Based on the framework, the various reforms are classified into categories reflecting their regulatory effectiveness and/or their impact on sources of market failure. The paper arrives at a generally positive assessment of the reforms, but points out three areas of concern: the lack of a fixed term appointment for the regulators; the persistence of non-competitive conditions in the market; and the excessive entry of new scrips into the market, although in recent days, some steps have been taken to address this problem as well Introduction THE reform of the regulatory framework governing the Indian stock market began in the late 1980s with the establishment of the Securities and Exchange Board of India (SEBI), but it gained significant momentum with the consolidation of all regulatory authority with SEB! in 1992. Since then a large number of reforms have been initiated, relating to virtually every aspect of the market's functioning. Given that such sweeping reforms have been carried out, how is one to assess the effectiveness of the reform package?