The Financial Sector in India

In an article titled 'Two lessons from the scandal at NSE', published in Hindustan Times dated 26.07.2022, the author Mr. Pramit Bhattacharya, a journalist from Chennai, has written as follows.

'Without a robust financial sector, it will not be possible to sustain rapid growth in the country. Hence it is important that the design of India's financial architecture be thought anew.'

My observation --
One correction is needed in that statement.
'Without a robust manufacturing sector, it will not be possible to sustain rapid growth in the country. Hence it is important that the design of India's financial architecture should be thought anew, with that focus.'
I have suggested for such new type of architecture in broad view.


The Comparison --

(1) The potential for employment generation --
There is huge population with low skill or semi skill vocational abilities. The financial sector doesn't have that potential. It is the manufacturing sector which can generate adequate number of jobs for them.

(2) The potential for earning foreign exchange --
The financial sector surely brings the foreign exchange. But it is more or less like borrowed money or in more correct words, it is the money which 'not-earned', which needs to be repaid or is bound to return to parent nations in future. On the other side, the manufacturing sector has large potential for doing exports and earning the foreign exchnge which will stay for many years in India, by way of ownership.

(3) The aspect of FDI v/s. FII, FPI --
The FII, FPI are treated as the volatile money whereas the FDI remains in a nation for many years. The other nations whose economies grew in the past had followed the FDI route. So here also the manufacturing sector is seen better than the financial sector.

(4) The aspect of consumer capacity --
At the retail consumers level, the financial sector leads to the personal loan schemes for doing shopping. But it doesn't augment the repayment capacity of the huge population. The manufacturing sector has that potential, because it provides the people with the jobs and the earnings.

Inference --
The manufacturing sector surely is more rewarding than the financial sector.


The Important Points to Note --
 
India needs such financial architecture which will generate maximum leverage (the least cost) for all other sectors in the main course of the economy. The financial sector is like a sector from the support services. It will be harmful for India if it is treated by the economic advisors and the policy makers, like a sector from the main course of the economy. India is already experiencing this over last few years, as the economy is seen not picking up the momentum despite many attempts of providing the stimulus.

I have suggested for doing the integration of the financial services regulation. Read about my suggestion for merging the MoF, the RBI, the SEBI, the IRDA and such other bodies and foming a unified body like National Financial Services Council of Bhaarat. That is the need of time.


Last updated on 2022.07.28. (First uploaded on 2022.07.28.)




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