Excessive financialisation can hurt India’s economy, cautions Survey
(Source – The Hindu, International Edition – Page No. – 6)
Topic: GS3 – Indian Economy |
Context |
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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.