The Indian Financial System and Financial Market Operation

The financial system in India comprising of financial institutions, financial markets, instruments and services is characterised by rwo major segments − a growing organised sector and a traditional informal sector. The key to maintaining high growth with reasonable price stability lies in rapid capacity additions through investments, productivity improvements, removal of infrastructural bottlenecks ameliorating the skill shortages and improving the effectiveness of government intervention in critical areas for more inclusive growth.

The Financial System is a subject that is assuming greater importance and is bound to be one of the key topics of discussion duriing the next two/three decades. This is, as it should be, to consider what sorts of financial institutions will be best suited to the economic environment in the forthcoming millennium.

A financial system provides services that are essential in a modern economy. The use of a stable, widely accepted medium of exchange reduces the costs of transactions. It facilitates trade and, therefore, specialization in production. Financial assets with attractive yield, liquidity, and risk characteristics encourage saving in financial form. By evaluating alternatine investments and monitoring the activities of borrowers, financial intermediaries increase the efficiency of resource use. Access to a varity of financial instrumrnts enables economic agents to pool, price, and exchange risk. Trade, the efficient use of resources, saving, and risk taking are the cornerstones of a growing economy.