Need to differentiate between financial, non-financial regulation: CEA

Chief Economic Advisor V Anantha Nageswaran on Wednesday said there is a need to differentiate between regulation of financial and non-financial sectors as competition in financial sector can lead to excessive risk taking and bring instability.

"We do need to make a distinction between regulation with respect to financial sector and regulation with respect to non-financial sector of the economy," Nageswaran said at the CII Global Economic Policy Forum 2024.

He said in non-financial sector, except in case of natural utilities where one needs a regulator to protect customer interest, competition or market forces will take care of what the regulators do.

In financial sector, regulators have the tendency to lean towards excessive regulations, as if things go wrong in this sector the state is expected to bail out and the effects are systemic.

" In financial sector, competition sometimes leads to excessive risk taking and competition can be a source of instability rather than stability, which is not the case for non-financial sector of the economy. And the manifestation or climaxing of that was the 2008 global financial crisis," Nageswaran said.