(Commonwealth_India) India’s financial markets are poised to play a pivotal role in shaping the country’s economic future, especially as it confronts global challenges and seeks to realize its long-term developmental aspirations. Reserve Bank of India (RBI) Governor Sanjay Malhotra shared this perspective during his address at the 24th FIMMDA-PDAI Annual Conference held earlier this week in Bali. His remarks underscored the evolving role of financial markets as powerful instruments for economic transformation.
Governor Malhotra emphasized that financial markets serve as the backbone of any modern economy. As platforms for raising capital and facilitating the trading of financial assets, these markets significantly contribute to economic dynamism. He stressed that for India to navigate the rapidly changing global landscape and meet its ambitious goals, robust and efficient financial markets are essential. According to him, financial markets are not only enablers of economic growth but also strategic tools that can buffer the economy against volatility and drive sustainable development.
Reflecting on the historical evolution of financial markets, Malhotra pointed out that such systems have existed for centuries. Over time, they have continually adapted to meet the needs of shifting economic paradigms. In India’s case, the transformation has been both gradual and deliberate, driven by domestic aspirations and shaped by lessons from various global and domestic financial crises.
He noted that India has made remarkable progress in building a strong and resilient financial market ecosystem. These advancements have been motivated by the country’s evolving economic landscape and a constant emphasis on learning from past experiences. Over the years, India’s markets have become more sophisticated and better regulated. Today, they are supported by a modern infrastructure and governance framework that ensures high levels of transparency—on par with global standards.
Malhotra also shed light on the impressive liquidity in several key segments of India’s financial markets. He stated that markets for government securities, foreign exchange, and derivatives are not only robust when compared to other emerging economies but also rival those in many developed nations. This liquidity is a testament to the depth and maturity of India’s financial ecosystem.
A significant driver behind this progress has been a series of targeted regulatory reforms. These reforms have strengthened market infrastructure and introduced greater diversity in terms of both financial products and market participants. There has also been a noteworthy convergence between India’s domestic (onshore) markets and international (offshore) markets, fostering a more integrated financial system.
Tracing back to the late 20th century, Malhotra recalled a time when India’s financial landscape was shaped by a cautious, conservative macro-financial approach. This situation began to change in the 1990s with a series of liberalization measures. Interest rates were deregulated, the Indian rupee was allowed to float freely on the current account, and the capital account was gradually opened up. These shifts marked the beginning of a new era for India’s financial markets—one focused on market-driven mechanisms and international integration.
Despite the substantial progress, the RBI Governor highlighted that the fundamental priority has remained consistent: ensuring macroeconomic and financial stability. However, as India’s economy expands and becomes more globally interconnected, the role of financial markets has become even more crucial. They now carry a broader responsibility—meeting the needs of a more complex economy, supporting innovation, managing risk, and facilitating investment flows at scale.
Malhotra concluded by reinforcing the idea that a well-functioning financial market is not merely a support system but a strategic pillar of the country’s development. In today’s interconnected world, where shocks can transmit rapidly across borders, having deep, transparent, and resilient markets will be critical for India to achieve its long-term goals and maintain economic stability.
