Excessive financialisation can hurt economy

The Economic Survey of 2024-25, tabled in Parliament on Friday, has identified financialisation as a risk and said such a phenomenon has resulted in unprecedented levels of public- and private-sector debt in developed economies.

- MANOJIT SAHA

"One critical risk to guard against is the dominance of financial markets in shaping policy and macroeconomic outcomes, a phenomenon known as 'financialisation'," the Survey said.

The report said India should strive to maintain a fine balance between financial-sector development and growth, on the one hand, and financialisation, on the other, as the country was trying to align its financial system with its economic aspirations for 2047.

The report said the financial sector was undergoing a transformative period marked by several emerging trends, and noted there was an increase in the share of consumer credit in loans of banks and a rise in non-bank financing options.

"The Indian financial sector is currently at a pivotal moment. The traditional dominance of banks in providing credit is beginning to decline, and other participants and products in the financial sector are increasingly filling this role," it said.