Evolution of Indian Financial System
Evolution of Indian Financial System: A Critical Review
EXECUTIVE SUMMARY
The Economic Development of a country depends, inter alia, on the financial system. The larger the proportion of the financial assets (money and monetary assets) to real assets (physical goods and services), the greater the scope for economic growth in the long run. For growth to take place, investment is necessary which flows from the financial system. Besides, as a scarce factor of production in the Less Development Countries (LDCs), finance has a crucial role to play in these economies.
The growth objective of the financial system is to achieve the structure and rate of growth of various financial assets and liabilities in consonance with the optimal characteristics of real capital stock. The more efficient composition of real wealth is obtained through the promotion of such financial assets which provide incentives to savers and the public to hold a growing part of their wealth in financial form. Increasing rate of savings correlates well with the increase in the proportion of saving held in the form of financial assets relative to tangible assets. There is a direct correlation between growth of the economy and the growth of the financial assets. Investment in the real sector depends on the functioning of the financial sector, as the latter collects and channels saving into investment which is necessary for growth. It would be pertinent to note here that economic growth is function of the level of investment, capital-output ratio in each activity of productive process, the level of investment, determines the increase in output of goods and services and incomes in the economy. The Indian financial system is undergoing a sea change in response to the changes that have been taking place in the social, political and economic environment and in the process laying a sound edifice for a vibrant economy.
MAJOR IMPACT EVENTS SINCE INDEPEDENCE
The Indian financial sector comprises a large
EXECUTIVE SUMMARY
The Economic Development of a country depends, inter alia, on the financial system. The larger the proportion of the financial assets (money and monetary assets) to real assets (physical goods and services), the greater the scope for economic growth in the long run. For growth to take place, investment is necessary which flows from the financial system. Besides, as a scarce factor of production in the Less Development Countries (LDCs), finance has a crucial role to play in these economies.
The growth objective of the financial system is to achieve the structure and rate of growth of various financial assets and liabilities in consonance with the optimal characteristics of real capital stock. The more efficient composition of real wealth is obtained through the promotion of such financial assets which provide incentives to savers and the public to hold a growing part of their wealth in financial form. Increasing rate of savings correlates well with the increase in the proportion of saving held in the form of financial assets relative to tangible assets. There is a direct correlation between growth of the economy and the growth of the financial assets. Investment in the real sector depends on the functioning of the financial sector, as the latter collects and channels saving into investment which is necessary for growth. It would be pertinent to note here that economic growth is function of the level of investment, capital-output ratio in each activity of productive process, the level of investment, determines the increase in output of goods and services and incomes in the economy. The Indian financial system is undergoing a sea change in response to the changes that have been taking place in the social, political and economic environment and in the process laying a sound edifice for a vibrant economy.
MAJOR IMPACT EVENTS SINCE INDEPEDENCE
The Indian financial sector comprises a large