Economic Survey 2024-25 pointed out an important aspect around India’s economic financialisation. The Survey noted that that excessive financialisation can hurt the economy while delving into the risks pertaining to India’s financial sector.
“While there is evidence of increasing reliance on the financial markets as a funding source, the financial markets must work in tandem with the banking sector to bridge the capital requirement gap. The financial markets must grow in line with, but not faster than, the economy's capital needs and overall economic growth,” the survey noted.
It also called for banks to banks to enhance their capabilities to meet the demands of new-age households and the digital economy while maintaining their primary credit creation function. “Excessive financialisation can hurt the economy. The costs may be particularly high for a low-middle-income country like India,” it added.
“India must prepare itself with appropriate regulatory and government policy measures to intervene and mitigate these risks when necessary”.
The Survey added that as these emerging trends mark the dawn of a new era for India's financial sector, it also brings regulatory challenges and potential risks that cannot be overlooked. “One critical risk to guard against is the dominance of financial markets in shaping policy and macroeconomic outcomes, a phenomenon known as 'financialisation.' The consequences of financialisation are evident in advanced economies, where it has led to unprecedented levels of public and private sector debt— some visible to regulators and some not,” the survey said.
Economic growth in such contexts becomes overly reliant on rising asset prices to offset leverage, exacerbating inequality and asset market considerations that may overly influence public policies, particularly regulatory ones, the survey warned.
“As India strives to align its financial system with its economic aspirations for 2047, she should strive to maintain the fine balance between financial sector development and growth on the one hand and financialisation on the other”. On this note, the survey added that ensuring incentives in the sector are consistent with national growth aspirations is a policy imperative.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
