New India by Arvind Panagariya

Author:Arvind Panagariya
Language: eng
Format: epub
Publisher: Oxford University Press
Published: 2020-01-15T00:00:00+00:00

Concluding Remarks

The importance of well-functioning financial markets for growth and development cannot be overemphasized. High- and low-productivity enterprises coexist within the same sector in disproportionately large volume in developing countries. As a result, any policy initiatives at the level of the sector end up promoting both high- and low-productivity activities in that sector. Well-developed and well-functioning financial markets can overcome this problem by directing finance to high-productivity activities regardless of the sector.

Security markets, especially in the debt sector, remain a work in progress in India. Though equity markets have deepened, new issues as a source of funds are still not very important. The debt market has had a late start in India. Though it has seen high growth in recent years, total corporate debt remains at only 16.6 percent of GDP. Until new issues of equity and debt take off in a big way, bank credit will remain the most important source of investment funds. Indeed, a well-functioning banking sector, which is the backbone of the financial system of any country, is also critical to the growth of the securities market. Therefore, it is urgent that India take the actions necessary to grow its banking sector and make it competitive, secure and efficient. This is the subject I consider in Chapter 9.

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