An Analysis of Financial Integration and Financial Stability in India
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The financial system is essential for growth, and a repressed financial system, characterized by price distortion, under saving, negative or unstable returns on savings and investment, and inefficient allocation of savings among competing users, impedes growth. As the financial system develops, households substitute out of unproductive tangible assets, raising the total real supply of credit, the quantity and quality of investment, and thus the rate of economic growth. In this perspective, the lack of financial development is simply a manifestation of the lack of demand for financial services. As the real sectors of the economy grow the demand for various financial services rises and will thus be met by the financial sector. Financial integration is a phenomenon in which financial markets of economies are closely integrated. Financial integration is used as an indicator of long run equilibrium which explains a greater inter-linkage or greater complementary relationship across different market segments. A good, solvent and efficient financial sector is a prerequisite for the smooth functioning of the real economy. In India, the concept of financial stability is a late entry. The present study examines the causal relationship between financial integration in India. The main focus of the study is to quantify the links between financial depth, Growth, Inflation and Per capita growth with comparative to other countries to know effective financial sustainability in the economy. Hence the present work enlightened the financial integration in India. The study will be undertaken by collecting Secondary sources of data and information. The data will be obtained from published sources such as World Bank, IMF, RBI, etc. The study will be evaluating the impact of the financial integration and macroeconomic growth determinants, by using India as a country-specific case with macro level data sets. The choice of different statistical techniques is based on suitability to the objectives of the study. All this goes to show the better prospects and wide scope for Financial Integration in India the forthcoming financial era.
Financial Integration, Financial Stability, GDP growth rate, Per Capita growth rate, Inflation, India.