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Capital markets can be used as a major source for meeting funding requirements of the country to reduce dependence on banking channels, the Economic Survey suggested today.
Stressing on a need to diversify within and outside the banking system, the survey said that "more banks and more kinds of banks must be encouraged", but there is a need to develop alternative sources.
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"Healthy competition from capital markets is essential too which will require policy support," it said.
Looking at the global trend, the survey observed that that banking credit should shrink in size over the course of development relative to other sources of funding such as capital markets.
However, it said that India is neither over-banked nor are its capital markets too small at this stage of development.
"That will have to change over time and the policy conditions should facilitate that transition but for the moment India is not an outlier," the survey for 2014-15 added.