Financialisation Risks in Economic Survey 2024-25
Why in the news
The Economic Survey 2024-25 cautioned that India should grow its financial sector without sliding into excessive financialisation, given shifts under way in the system.
Key facts
- Financialisation: a situation where financial markets increasingly shape policy and macro outcomes; in developed economies it has produced record public and private debt.
- The Survey ties this caution to India’s 2047 long-term economic goals.
- Bank dominance is shrinking: share in total credit went from 77% (FY11) to 58% (FY22).
- Consumer credit share climbed from 18.3% to 32.4% (FY14 to FY24), with greater use of non-bank funding.
- Credit-to-GDP ratio remains under its trend line despite fast bank credit growth since 2022, so the growth is not seen as overheating.
Data snapshot
| Indicator | Figure |
|---|---|
| Banks’ share of credit | 77% (FY11) to 58% (FY22) |
| Consumer credit share | 18.3% to 32.4% (FY14-FY24) |
| Corporate bond issuance, 2024 | ₹7.3 trillion |
| Insurance share of services FDI equity, H1 FY25 | 62% of $5.7 billion |
| Insurance FDI cap | 26% (2000) to 74% (2021) |
Risks from AI in banking
- Lack of transparency, trust problems and difficulty auditing AI-led decisions.
- Further risks to staffing, cybersecurity and outside service vendors could damage trust in the financial system.
Reforms suggested
- IBC: to sustain 7-8% growth over the decade, improve efficiency and speed up resolution, especially for MSMEs facing high legal costs.
- Corporate bonds: issuances were mostly private placements, which restricts retail investors; the Survey wants wider access and more transparency.
Exam angle
- Source document: Economic Survey 2024-25.
- Related terms: credit-to-GDP ratio, private placement, IBC.
- Sector with the largest services FDI equity share in H1 FY25: insurance.