India needs to be cautious against excessive ‘financialisation’: Chief Economic Advisor Nageswaran

Bengaluru: India’s Chief Economic Advisor (CEA) V Anantha Nageswaran, on Monday, said that India must safeguard its economic growth by retaining policy autonomy and managing global capital flows effectively.

Speaking at an event organised by the Confederation of Indian Industries (CII) in Mumbai, Nageswaran also cautioned against excessive dominance of the role of financial markets in public policy, or financialisation.

At the same event, Securities and Exchange Board of India Chairperson Madhabi Puri Buch said that a single disclosure by listed companies on one stock exchange will soon be automatically uploaded on the other bourse, and that there will soon be systematic investment plans (SIPs) for as low as Rs 250 per month.

"When the market becomes bigger than the economy, it is natural, but not necessarily reasonable, that the considerations and priorities of the market dominate the public discourse and also influence the policy discourse. I am referring to the phenomenon called financialisation, or the financial market's dominance of policy and macroeconomic outcomes," Nageswaran said, adding a disclaimer that these are his personal views and not as CEA.

He said that India’s stock market capitalisation is currently 140% of GDP and that financialisation is something that has to be avoided.

"Unprecedented levels of public and private sector debt, some visible to regulators and some not, economic growth dependent on continued increase in asset prices to offset the leverage that have built up and hence a massive surge in inequality. India must be wary of these outcomes and avoid this trap," he said.

Developed countries are encountering these challenges after they have become materially prosperous, he said, adding per capita, India is just stepping into the lower middle income category.

"India has one of the brightest global economic growth prospects. It is up to us to sustain it, and it is also up to us to use that to our advantage in carving out policy space for ourselves," Nageswaran said.

Meanwhile, Buch’s announcement on single filing with exchanges becoming a reality very soon comes as Sebi recently proposed sweeping changes to disclosures as well as listing requirements by listed companies.

As part of the proposed changes, a filing made on one exchange will automatically reflect in the other exchange, Buch said. She also said that investors will be able to start SIP (Systematic Investment Plan) with as low as Rs 250 per month.

Buch avoided commenting on Real Estate Investment Trusts (REITs), but said there are regulations simplifying such entities. "If I utter a word on REITs, I will be accused of conflict of interest," she added.

The remarks came as US short-seller Hindenburg Research raised questions about a potential conflict of interest involving Buch and private equity major Blackstone. Her husband Dhaval Buch is a senior advisor with Blackstone, a major player in the REIT space. However, the couple has refuted the allegations.