Evolution of India’s Financial System – The Backbone of Transformation

As India continues its journey towards a financially inclusive regime through innovative policies involving a multi-pronged approach balancing equitable distribution with efficiency, the country’s financial system has come a long way. It has evolved from being a financially repressive regime, especially in the 70s, to a modern financial sector where public sector financial institutions tend to compete with the private sector financial institutions. In the future, the Indian financial sector could focus on further privatization of banks and insurance companies for increased efficiency/profitability, expanding insurance and pension systems, increasing the penetration of mutual funds, and developing domestic institutional investors leading to better domestic liquidity in capital markets. Policymakers could also weigh allowing full capital account convertibility in due course of time, in order to truly internationalize the Indian Rupee, which will help attract more foreign capital inflows further aiding India’s transformation into a post-industrial economy.