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India’s stock market capitalization currently stands at approximately 140 percent of its GDP. Nageswaran noted that the growing profitability of the financial sector and high levels of market capitalization require closer scrutiny. “When the market becomes bigger than the economy, it is natural, but not necessarily reasonable, that the market’s considerations dominate public discourse and influence policy,” he warned.
Nageswaran defined financialization as the dominance of financial markets over public policy and macroeconomic outcomes. Citing the experience of developed countries, he said financialization has led to unprecedented public and private debt levels, economic growth reliant on rising asset prices, and increased inequality. “India must be wary of these outcomes and avoid this trap,” he urged.
As India steps into the lower middle-income category, Nageswaran emphasized that the country cannot afford the financialization and its consequences that are affecting advanced economies. He stressed the importance of retaining policy autonomy to protect the economy from the instability of global capital flows.
Looking ahead, Nageswaran called for a balance between national economic priorities and investor interests. He also encouraged India to aspire to become a global agenda setter rather than an agenda taker. “Economic size and clout will influence our ability to set the global agenda, which in turn will impact our economic performance,” he said, adding that while some actions can be initiated now, their outcomes may take time to materialize.
Nageswaran concluded by highlighting that India’s bright economic prospects present an opportunity to shape its future, but the country must act wisely to maintain stability and growth in the long run.(With inputs from PTI)