The economic development of any country depends on the amount of investment in a nation’s output of goods and services. The financial system provides a mechanism by which savings are converted into investments. The financial system of any country consists of specialized and non specialized financial institutions of financial markets which facilitate the transfer of funds through financial instruments and services. Capital market is the market which diversifies the funds for economic development of the country. This paper describes the role of capital market in Indian economy with its historical background along with significance in pre-independence and postindependence growth. This will help the readers to know importance of capital market and understanding the historical perspective of capital market