Stock Market Development and Economic Growth: Interrelationship in India

The finance literature suggests that stock markets serve important functions even in those economies in which a well-developed banking sector already exists. Stock markets also provide entrepreneurs with liquidity and for opportunities to diversify their portfolios. The primary purpose or objective is to study the interrelationship between stock market development and economic growth of India in both pre and post-liberalized periods between 1971 and 2002. For want of consistency of the data used and for statistical analysis, annual data are used for pre liberalization period. In order to have a reasonable number of observations for statistical significance, quarterly data are used for twelve years in the post liberalization period. Empirical testing is done by various classifications namely: stock market development, comparison of stock market development and economic growth variables and interrelationship between stock market development and economic growth during pre and post liberalization separately. Descriptive statistics, bi-variate correlations, exponential growth, elasticity and conglomerate indexes step wise regressions are the tools used in the study.