Regulators Should Foster Fin Inclusion

New Delhi: Financial sector regulators need to maintain an optimal balance between the stability and innovation to foster financial inclusion, said Economic Survey 2024-25 tabled in Parliament on Friday.

The financial sector is primarily governed through independent regulatory bodies (IRBs) - RBI, SEBI, IRDAI, PFRDA and IBBI - with FSDC having a broader financial stability mandate, enabling inter-regulatory coordination and promoting financial sector development, the survey said. Each IRB varies in design, the nature of delegated functions, and the degree of autonomy, which are unique to the socio-political context of its evolution and the regulated domain, it said.

“Regulation in the financial sector must strike an optimal balance between the imperative of stability and the goals of fostering innovation, efficiency, and competition. Given the country’s low financial literacy and lower-middle-income status, ensuring stability is essential to prevent systemic risks and protect consumers,” it said.

However, it said, this should not come at the expense of stifling creativity, innovation, or healthy market dynamics. At the same time, an excessive focus on innovation and competition without adequate safeguards can lead to financial instability, resource misallocation, and erosion of trust in the system, it said.

Striking this balance is particularly critical for India, considering its vast and diverse economy, growing aspirations, and substantial investment needs to sustain high growth and development, it said.

Stressing that there is vast scope for improvement in the regulatory responsiveness in terms of following participatory processes of the IRBs, the survey said, the Union Budget 2023-24 has recommended that the financial sector regulators include public consultations as part of the regulation-making process, and laying down time limits for various applications under different regulations.