Given the rapidly evolving landscape, Department of Economic Affairs Secretary Anuradha Thakur(in pic) emphasised the need for continued reforms and sustained focus on areas such as prudent regulation, disclosure and governance standards, gradual and controlled liberalisation, a strong and resilient banking system, deeper financial inclusion, a calibrated approach to foreign currency exposure, a world class payments and digital infrastructure and diversified financial infrastructure and strong macroeconomic management
Mumbai: The Department of Economic Affairs Secretary Anuradha Thakur on Monday said there is a need to harmonise regulations across multiple regulators looking after various aspects of the financial sector to reduce friction in compliance for investors.
“I think more steps need to be taken to simplify processes, progressively digitise processes for FPIs (foreign portfolio investors), streamline KYC for NRIs and also harmonise regulations across regulators so as to reduce compliance friction for investors,” Thakur said.
The 1994-batch IAS officer from the Himachal Pradesh cadre who was recently appointed as the DEA secretary added that the government is already working on the same.
On the GIFT City reforms side, Thakur also said foreign investors view India’s lone International Financial Services Centre as a “sandbox” for their play in the rest of the country.
“Our approach to GIFT City is to try and push a continued alignment with international market practices,” she said , speaking at the CII Financing Summit here.
Thakur also mentioned that there can be a new arbitration centre in the offing.
The key functionary from the Ministry of Finance said the Indian economy is “first and stable”, and has not been impacted severely by the US-imposed tariffs.
“The Indian financial sector is the most stable among all the emerging markets but we need to be aware that the financial landscape is changing very fast,” she added.
For sustained growth of over 8 per cent, the country needs a lot more investments, and banks and capital markets assume a pivotal role in the same, she said.
India’s financial sector has become sufficiently robust, innovative, and increasingly inclusive, and is now ready to script a new chapter of economic transformation, said Thakur.
She pointed out that the government has undertaken a plethora of measures such as recapitalisation of banks, strengthening NPA recovery mechanisms, to position the sector as the most stable among emerging economies.
However, given the rapidly evolving landscape, she emphasised the need for continued reforms and sustained focus on areas such as prudent regulation, disclosure and governance standards, gradual and controlled liberalisation, a strong and resilient banking system, deeper financial inclusion, a calibrated approach to foreign currency exposure, a world class payments and digital infrastructure and diversified financial infrastructure and strong macroeconomic management.
Secretary, Department of Economic Affairs also highlighted three major structural shifts shaping India’s financial system: the rapid financialisation of savings, with mutual fund AUM tripling even as low-cost deposits slow; a shift away from bank-dominated credit, with banks’ share in total credit falling from 77% in 2011 to around 60% in FY22; and a sharp rise in equity market participation, reflected in a six-fold increase in IPO activity since 2013.
These trends, she noted, reinforce the need for deeper market liquidity and stronger regulatory coordination to channel savings into productive investment.
She also noted that several global investor’s view GIFT City not just as a financial hub, but as a potential sandbox for wider financial-sector reforms in India.
She highlighted that ongoing work by IFSCA which is ranging from more facilitative fund management rules to deeper use of digital technologies and clearer regulatory frameworks which has positioned GIFT City to pilot innovations that can later be scaled across the broader financial system.
Pointing out that more work needs to be done on the capital markets front, Thakur rued that the corporate bond market is dominated by the high-rated issuers and there is also a dearth of activity in the secondary market front.
There is a higher reliance among companies to rely on internal resources for funding requirements, she said, pointing out that an ongoing study has pegged a 10 percentage point growth on this parameter to 70 per cent between 2014 and 2024.
She said the trend of decreasing reliance on bank borrowings and institutional debt is more pronounced in the manufacturing sector, and added that we also need to recognise the impact of delayed payments to small units.
“I hope that the pass through of GST cuts will ignite the animal spirits in the financial sector,” Thakur said.
SEBI Chairman Tuhin Kanta Pandey on Monday said that India’s capital markets could soon become the preferred destination for household savings, provided the country sustains its economic growth trajectory.
Speaking at the ‘CII National Financing Summit’ here, he projected that India’s unique investor base could double over the next three to five years, given the still-low penetration of equity ownership.
A significant milestone has already been reached, according to Pandey. Domestic investors, including both households and institutions, now own a larger proportion of listed stocks than foreign investors, a sign of rising market confidence, he added.
Deeper participation, he said, will be essential to converting India’s growing savings pool into long-term capital for businesses, as there are approximately 135 million distinct market participants.
Expressing similar sentiments, V Anantha Nageswaran, Chief Economic Advisor to Government of India observed that globalisation is being reshaped by geopolitical realignments.
Capital flows, traditionally driven by market signals and macro fundamentals, are now increasingly influenced by political alignments and strategic considerations. This, he explained, gives rise to a paradox as despite India being one of the fastest growing economies, foreign investors continue to demand a higher country risk premium from India than from its developing country peers.
In this environment of politically driven global capital, Nageswaran stressed that India must prioritise domestically driven financing, as external capital alone will be insufficient to meet the scale of the country’s development ambitions.
As per the statement, he also cautioned against trends visible in advanced economies, such as deepening financialisation, rapidly rising asset prices, and weak employment and warned of the potential bursting of the AI-driven boom, which he suggested could have far greater implications than the dot-com bust of the 2000s.
He also warned that rapid tokenisation and digital disintermediation will fundamentally reshape banking, urging financial institutions to stay aligned with the real economy and adopt a long-horizon approach.