AVOID OVER-FINANCIALISATION

RAPID FINANCIAL SECTOR GROWTH FAVOURS PROJECTS WITH HIGH COLLATERAL BUT LOW PRODUCTIVITY

- ANUPREKSHA JAIN

THE ECONOMIC SURVEY warned that excessive financialisation can hurt a low-middle-income economy like India. It noted that the dominance of conventional banks in providing credit has come down, while the reliance on other financial products to fulfil credit needs has increased. It emphasised the need of financial markets to grow in tandem with the economy's capital needs and the overall growth, but not faster.

While there is evidence of an increasing reliance on financial markets as a funding source, financial markets must work in tandem with the banking sector to bridge the capital requirement gap," the Survey said.

With a transformation like this, an economy like India should be well prepared with appropriate regulatory measures to mitigate the risks as and when they arise.

At the same time, the Survey asked banks to enhance capabilities to meet the demands of new-age households and the digital economy while maintaining their primary credit creation function.