Growth with resilience

Vibrant BFSI sector will augment growth

The three-day annual Business Standard BFSI Insight Summit, which ended on Wednesday, brought together policymakers, financial-sector regulators, industry leaders and investors to discuss the current state of the economy and the financial sector, as well as future challenges and opportunities. Given the backdrop of heightened global economic uncertainty and varied risks faced by different countries, the summit provided a robust assessment of the current situation. One recurring theme in the talks delivered by policymakers and in discussions was the resilience being displayed by the Indian economy even in adverse circumstances. Indeed, India is growing rapidly despite uncertainties. The Indian economy surprised analysts by posting a growth rate of 7.8 per cent in the first quarter this financial year. The International Monetary Fund recognised this, increasing India’s growth projection for the current year to 7 per cent, as against its previous forecast of 6.4 per cent.

 

The banking, financial services, and insurance (BFSI) sector plays an important role in the development of any economy.  It helps channel surplus savings in the system into productive investment, which enables growth, jobs, and wealth creation. The health and efficiency of the financial sector also play a vital role in serving the needs of the economy and enabling it to attain its true potential. Given that India is seen as largely a bank-financed economy, it is worth noting — as was also underscored at the summit by Shaktikanta Das, Principal Secretary-2 to the Prime Minister and former Governor of the Reserve Bank of India — that the health of Indian banking has consistently improved over the past several years, with the gross non-performing asset ratio in the banking system declining to a multi-decade low of 1.8 per cent of its gross advances in March. The financial position of the Indian corporate sector is also strong. India has clearly overcome the so-called twin balance-sheet problem of the last decade and is ready to invest — initial signs of this are now beginning to emerge. Mr Das also noted: “The BFSI sector has to take the lead in financing large infrastructure and new-age manufacturing to support massive public and private asset creation.”

 

India has a vibrant financial sector and its sustained development will be critical to attaining higher growth over the medium to long term. The development of the pension and insurance sector, for instance, will increase the availability of  long-term funds for long-gestation projects. India already has a robust equity market, which is capable of providing risk capital to businesses even in an uncertain global economic environment. This has been made possible partly by the increasing penetration of mutual funds and the trust of the household sector in the market. However, in a large, vibrant, and complex market economy, economic agents have varied needs that the financial sector should be able to meet. It must be capable of providing timely credit to small businesses as well as to those wanting to finance large projects that may take years. Besides, the role is not limited to financing. It extends to areas such as insurance and managing foreign-exchange exposure wherever required.

 

The current global economic and geopolitical uncertainty, which has had a direct impact on international capital flows, indicates that India needs to augment domestic savings to support growth. The BFSI sector clearly has a big role. Further, given India’s development needs, it will nonetheless need foreign capital. Thus, it will be important to quickly address concerns raised in this context by both foreign direct and portfolio investors.