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Excessive financialisation can hurt India’s economy, cautions Survey

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(Source – The Hindu, International Edition – Page No. – 6)

Topic: GS3 – Indian Economy
Context
  • The Economic Survey warns about financialisation risks, urging balance between financial sector growth and stability.

Financialisation Risks for India

  • The Economic Survey warns against excessive financialisation, as rising household savings in the stock market can harm the economy, especially in low-middle-income countries like India.
  • Financialisation can lead to over-reliance on financial markets, increasing public and private sector debt, and causing economic growth to depend on rising asset prices.
  • This can worsen inequality and influence policy-making.

Need for Balance

  • India must maintain a balance between financial sector development and financialisation.
  • This requires understanding the country’s context, including household financial savings, investment needs, and financial literacy.
  • Policies must align incentives in the financial sector with the nation’s growth goals.

Financial Markets and Banking Sector Coordination

  • While financial markets are becoming a significant funding source, they must work alongside the banking sector to meet capital needs.

Regulatory Readiness

  • India must prepare for vulnerabilities arising from financialisation with appropriate regulatory measures and government interventions when necessary.
  • Banks need to adapt to the digital economy and new-age household demands while continuing their role in credit creation.

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