Economic Survey 2025 warns against excessive financialisation, urging balanced financial sector growth for economic stability
Mumbai: The Economic Survey 2025 has warned of "Excessive financialisation" that can hurt the economy, and the costs may be particularly high for a low-middle-income country like India. It said that the country’s financial markets must grow in line with, but not faster than, the economy’s capital needs and overall economic growth.
The Survey said that as India strives to align its financial system with its economic aspirations for 2047, she should strive to maintain the fine balance between financial sector development and growth on the one hand and financialisation on the other, it said.
The Economy cited the example of the Global financial crisis of 2008 that revealed that uninhibited financial sector growth can come with a cost to the real economy.
“The consequences of financialisation are evident in advanced economies, where it has led to unprecedented levels of public and private sector debt— some visible to regulators and some not,” it stated.
“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.
“It means that the country has to chart its path with respect to its context, considering the levels of financial savings in households, its investment needs, and levels of financial literacy. Ensuring that incentives in the sector are consistent with national growth aspirations is a policy imperative,” it stated.
The Survey emphasized that while there is evidence of increasing reliance on the financial markets as a funding source, the financial markets must work in tandem with the banking sector to bridge the capital requirement gap.
“As the country undergoes this significant transformation, it is crucial to be aware of the potential vulnerabilities that may arise. India must prepare itself with appropriate regulatory and government policy measures to intervene and mitigate these risks when necessary,” it pointed out.
Additionally, banks need to enhance their capabilities to meet the demands of new-age households and the digital economy while maintaining their primary credit creation function, it said.
