“When the market becomes bigger than the economy, it is natural-but not necessarily reasonable-that the considerations and priorities of the market dominate the public discourse and also influence the policy discourse,” Nageswaran said at an event organised by the Confederation of Indian Industry in Mumbai. “I am referring to the phenomenon called financialisation, or the financial market’s dominance of policy and macroeconomic outcomes.”
Nageswaran, however, clarified that it was his personal view, and not in the capacity of the CEA.
India’s stock market capitalisation is about 140% of its gross domestic product (GDP), he said.
Record financial sector profitability and elevated market capitalisation, or the market capitalisation to GDP ratio, often lead to financialisation.
The words of caution came as the consequences of such financialisation in the developed world have been far from desirable, according to Nageswaran.”Unprecedented levels of public and private sector debt, some visible to regulators and some not, economic growth dependent on continued increase in asset prices to offset the leverage that has built up and hence a massive surge in inequality (in some developed countries)… India must be wary of these outcomes and avoid this trap,” he said.
Content Source: economictimes.indiatimes.com