Financial Services Firms in India: The Road Ahead and the Challenges

Abstract

The landscape in which financial services firms operate in India has changed tremendously since the financial liberalization of the 1990s. Prior to this time, the financial sectors were heavily regulated in order to be aligned with the economic and social goals of the government. Similarly, to many emerging market countries, India today is faced with delicately balancing liberalization versus adequate regulation and supervision, to allow a safe and sound financial system to flourish. Currently, India has rebounded from the economic crisis of 2007–2008 relatively unscathed, especially when compared to the developed market economies. The Indian economy demonstrated resilience and recorded a better than expected growth of 7.9% for the second quarter of 2009–2010. The Reserve Bank of India (RBI), India’s central bank, projected a 6% GDP growth for 2009–2010, but has subsequently revised this projection to 7.5%, reflecting the continued recovery.¹ Indeed, the major risk that India faces at this phase deals with inflationary pressures associated with a quick recovery.