A natural commitment to the development of a matured financial system in the country particularly since the early nineties has been the emergence of an articulate financial service sector in the country. In fact, the efficiency of the emerging financial system primarily depends on the quality and the range of the package of financial services largely provided by the banking as well as non-banking financial companies. Although some of these services in India are at the initial stage they represent developments of considerable significance for the financial system in the country. The growth of output in an economy depends on the increase in the proportion of savings and investments to a nation's output of goods and services. The financial system and the financial institutions help in the diversion of rising current income into savings and thus investments. A financial system is a set of institutions, instruments and markets which foster savings and channel them to their most efficient use. The system consists of individual savers, intermediary markets and users of savings i.e. investors. Economic activities and their growth are greatly facilitated by the existence of financial system developed in terms of the efficiency of the market in mobilising savings and allocating them among competing users.
For realisation of full potential economies need institutions that impartially enforce property rights, low transaction costs and transparency, markets require institutions that impartially enforce contracts and property rights. The state must create the right kind of institutional environment and must be strong enough to enforce the institutional rights. The markets, institutions and the instruments are the prime movers of economic growth. Economic growth depends upon the existence of a well-functioning financial market. The development of financial structure is actually a necessary conditions to economic growth. The development of financial infrastructure helps in financial deepening. It is essential that financial institutions are developed sufficiently and market operations are fair, competitive and transparent. Market efficiency would be reflected in a wide dissemination of information, reduction of transaction costs, and allocation of capital to the most productive uses. The freeing the financial sector from government interference has been an important element of financial markets reforms in India in recent years. |
