Financial markets must play crucial role to fulfil India's aspirations: RBI Governor

Speaking at the 24th FIMMDA-PDAI Annual Conference in Bali earlier this week, RBI Governor Malhotra underlined the growing importance of financial markets as key enablers of economic growth.

"If India is to navigate the shifting tides and fulfil its aspirations, financial markets will have to play a crucial role. As the marketplace for raising capital and trading financial assets, financial markets are key enablers of economic growth," he said.

He also pointed out that financial markets have existed for centuries and have continued to evolve over time to meet the needs of changing economies.

Malhotra highlighted the progress India has made in building strong and efficient financial markets. "We have made significant strides in the development of financial markets in our country. Motivated to fulfil the nation's evolving needs and aspirations and guided by learnings from successive crises, our markets have matured and advanced," he said.

He noted that India's financial market infrastructure is now state-of-the-art and its transparency standards are comparable to the best in the world.

Markets such as government securities, foreign exchange, and key derivatives are highly liquid -- not just compared to peer economies but also to several advanced countries, he added.

The governor also highlighted that the recent regulatory reforms have further strengthened India's financial markets.

Malhotra said these reforms have led to greater diversity in products and participants. Additionally, there is now a tighter integration between India's onshore and offshore markets.

Tracing the historical evolution, the RBI Governor pointed out that until the late 20th century, India's financial markets were shaped by a conservative macro-financial approach.

However, significant changes began in the 1990s when interest rates were deregulated, the exchange rate was freed, and the Rupee became fully convertible on the current account. The capital account was also gradually liberalised.

While India's financial markets have developed steadily, the focus has consistently been on macroeconomic and financial stability.

However, in recent years, the expanding and increasingly interconnected economy has placed greater demands on the financial markets, making their role more critical than ever, Malhotra said.