Reform Strategies in the Indian Financial Sector

Abstract

The financial sector in India – banking, capital markets, insurance, mutual funds, etc. – has changed during the decade of reform of the nineties. Although many improvements have been effected, this paper argues that the scope of many of these changes has been relatively narrow and predominantly mechanistic. It is not surprising, therefore, that the outcomes of these actions have not been as far-reaching as required. While the sector is probably more robust than at the beginning of reforms, it is still susceptible to inefficiencies engendered inter alia by the blunted incentives associated with large public sector involvement in the sector, institutional rigidities and regulatory forbearance.