The Intersection of Financial Sustainability and Policy Reform

By Claudia 3 months ago
The Intersection of Financial Sustainability and Policy Reform

Policy reforms made by governments are case-specific, as you will notice that what works for one country does no good for another. The reason for this is simple – the needs of different economies are diverse because they face different market conditions and must prioritise issues in real-time. The digital revolution in India happened because of the increasing demand of the Indian market for enhanced monetary circulation. The European market had no such demands, and hence no digital revolution took place there. India has been grappling with major policy reforms both fundamentally and radically since independence. 

The post-1990 reforms are the ones that are responsible for the current economic triumph that we see. These reforms include the privatisation of nationalised banks, the deregulation of interest rates, and the spreading of awareness among the masses on finances. These steps have led to a significant cash flow to the market, strengthening the economy and empowering individuals. Let us now take a look at the impact of the key reforms and the challenges to the financial sustainability of this economic model.

Impact of financial reforms

The impact of major government decisions on financial reforms has been deft and assertive. Let’s take a look.

  • Deregulation: This step was a marker of the Indian economy since the liberalisation of the Indian market in the 1990s. It would not be an exaggeration to say that the government has redefined the ways banks run by way of partial privatisation. The results have been nothing short of remarkable. According to the IMF, the non-performing assets: deposits ratio is close to 1 per cent, a sign of a thriving economy. The United Nations agency has also observed that the banks have become profitable and there is healthy competition between them, which was the point of the reforms anyway.
  • Inclusion: Reforms such as the Aadhar-linked financial documents and inclusive measures such as the Jan Dhan Yojana have brought the weaker sections of the people within the main fold. These people did not have bank accounts and had thus been an untapped market waiting to be explored. With the increasing number of bank accounts, the banks now have a more robust credit flow that can be utilised for greater investment and prosperity of the economy.
  • Development of the market: The overall ecosystem built by the government has strengthened the stock market and helped take the Indian economy one step ahead. The stock market has ensured that it is now easier for businesses to access capital without the need for liquidity. Securities, equity and debt funds have made sure that there is no dearth of capital when there is shared responsibility within a disciplined regulatory framework.
  • Regulation: The economic reforms in India have been market-oriented, but it was never a bubble waiting to burst. The Reserve Bank of India has always taken care that the ties with foreign corporations do not hurt the Indian economy. That is the very reason why the recession of 2008 had minimal impacts on the Indian scenario.

The challenges to financial stability

Despite the brighter side, the economic reforms have not come without challenges. Let us investigate the matter:

  • Non-performing assets: Despite a thriving stock market, the percentage of NPAs has been increasing for the banks. In order to truly realise the vision of the liberalised market, bad loans have to be minimised. The best way to do it is by conducting better market research, which seems quite possible with the advent of AI. AI-integrated systems are now able to better judge the quality of the prospective investment – something that should inform future transactions made by financial corporations.
  • Improvement of financial literacy: Despite the UPI revolution, financial literacy still needs to do better than just carrying out cashless transactions. The onus is on the government to make the populace believe in the digital boom, which is tough in the face of financial scams and occasional bank failures. The scepticism of the general public has to be heeded and be seen as an opportunity to revamp financial security and reassure people about safe investments.
  • Regulatory issues: Although the regulatory framework envisioned by the Reserve Bank is prudent, it still needs to be a bit more forthcoming. That approach would ensure more support for the NBFCs, which have greater reach among the common people than the banks owing to their lenient lending policies. Ultimately, it is about balancing the risks and the opportunities, and that still has room for improvement.

The verdict

Therefore, it is safe to say that the intersection between financial stability and financial reform is delicate. It needs fine-tuning rather than a radical approach, as the online marketplace is a dynamic space, and any hasty decision may be detrimental to the development of the economy. The Indian economy is on the right path and in due course, must take steady and confident steps on its way to the top.