Building India for a new world - Role of financial markets : Report by CII-ICRA

Building India for a new world - Role of financial markets : Report by CII-ICRA

A dynamic financial market is critical for a country's development because it serves as an important middleman between financial resource suppliers and borrowers. To put it in a national context, its function has become even more critical as India emerges from the economic standstill caused by the Covid-19 pandemic and prepares to usher in all-round growth of critical infrastructure, industries, and agriculture. Preparing the country for the road ahead is an absolute necessity. The Confederation of Indian Industry (CII) and ICRA Ratings jointly released a knowledge paper titled "Building India For A New World - The Role Of Financial Markets" at the CII's 12th annual Financial Markets Summit.

The Covid-19 pandemic has slowed economic progress and resulting in a two-year loss of real GDP growth. Numerous organisations across industries have seen their capital investment plans impacted negatively as a result of funding constraints and decreasing capacity utilisation. Investments and growth must be accelerated urgently.

The administration has set an ambitious GDP target of $ USD 5 trillion and has committed to transforming AatmaNirbhar Bharat into a reality. Apart from providing financial support to agriculture and industry through various fiscal and monetary policies, infrastructure development is equally critical for building a new India for the future.

By 2025, the Government of India intends to invest Rs. 111 lakh crore in the National Infrastructure Pipeline (NIP). The Government of India's financial resources will need to be supplemented by the Indian Financial Markets, which have grown over time and are already playing a significant role in providing risk capital. This position will become even more critical in the future.

To fulfil the economy's rising needs, new financing structures and alternative sources of financing will need to be investigated and developed. The knowledge paper discusses the rise of various finance divisions, including banks, non-bank financial companies, debt, and mutual funds, as well as the regulatory changes that have occurred over time. It provides context for the expansion of various parts of the Indian financial system and regulatory reforms.

“Stable financial markets are critical for economic growth,” said Mr. Nilesh Shah, Chairman, CII National Committee on Financial Markets. Domestic GDP growth has been slowed by the Covid-19-induced slowdown twice, first in FY2021 and again in FY2022, but the impact was mild this time. To sustain GDP growth and achieve the objective of a $5 trillion economy, strong capital markets are required to channel savings and investments. This must be accompanied with conducive financial reforms. The summit will examine the role of India's financial system and its different features, the reforms undertaken thus far, and the mechanisms by which deficiencies in the system might be filled in order to attain growth targets.”

Mr. N. Sivaraman, Managing Director & Group CEO, ICRA Limited, stated on the occasion, "Measures to boost confidence through increased vaccination, increased government spending, and targeted fiscal measures will assist the economy in rapidly reviving and regaining growth momentum in a post-pandemic scenario." While the recovery with the second round of Covid-19 is positive, it must be sustained. Despite Y-o-Y growth on a low base in Q1 FY2022, India Inc. recorded sequential revenue declines in Q1 FY2022 due to the pandemic's second wave. This demonstrates the critical nature of reviving confidence, which is critical for maintaining the recent acceleration in vaccination delivery. Massive expansion of infrastructure investment is necessary, and financial markets, in addition to government financing, must play a significant role. The article highlights the critical role that financial markets may play in achieving the $ 5 trillion GDP target.”

High frequency indications paint a cautiously hopeful picture of a strengthening recovery in Q2 FY2022, fueled by state-level limitations being eased and building confidence that has to be bolstered further.