Bhole, L. M.

Collected Papers on Credit and Finance, Collected Papers, Vol. 2

Excerpt (Capital Market As Infrastructure, p. 1): Economic growth of any country depends, among other things, on the existence of highly developed infrastructure. Infrastructure refers to the system of public services which may be said to form the basis of development. Transport, power, communications, irrigation, educational institutions, are some of the constituents of the overall infrastructure of the economy. If these economic overheads are absent or highly underdeveloped, a number of bottlenecks would emerge in the normal process of economic growth, with the result that growth would suffer either in speed or in size. From this point of view, a well integrated and efficiently functioning capital market is essential in order to increase the rate of capital formation which, in turn, is a basic precondition for the economic growth.
The process of capital formation has two aspects: firstly, there should be some individuals in the community who would prefer future consumption to present consumption. Secondly, savings generated thereby should be converted into productive capacity by way of acquiring productive physical assets. In olden days, when enterprises were owned mainly by those who undertook them, this dichotomy between those who would save and those who would invest was not very significant. But as the economic system became more complex, the management and the ownership of enterprise were divorced from each other.