Excessive financialisation can hurt the economy says Economic Survey

Economic Survey 2024-25 warns against excessive financialisation in India, urging a balance between growth and risks.

With a large part of the household savings heading to the stock market and increasingly retail investors taking charge at Dalal Street, excessive financialisation can hurt the economy and the costs may be particularly high for a low-middle-income country like India, the Economic Survey 2024-25 has cautioned. 

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“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 has flagged. 

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“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. 

“Economic growth in such contexts becomes overly reliant on rising asset prices to offset leverage, exacerbating inequality and asset market considerations that may overly influence public policies, particularly regulatory ones,” it added. 

According to the Survey India should strive to maintain a fine balance between financial sector development and growth on the one hand and financialisation on the other.