Assistant Professor, Department of Economics, Ramjas College, University of Delhi, Delhi, India. bhatiaarchi0@gmail.com
The 2007/08 global financial crisis has led to renewed interest on the role of financial liberalization in economic development. Financial liberalization affects economic growth through two channels, namely, capital accumulation and total factor productivity (TFP) increase. The literature on the direct and indirect linkage between financial liberalization is very diverse with some studies showing substantial gains from financial liberalisation in terms of growth while others showing little or no benefits of financial liberalisation. India is today at a junction where its capital account, equity markets and banking sector are being increasingly getting integrated with the world economy. The Capital account has become fairly open in terms of volume of flows and fewer formal restrictions. This paper analyses the current state of India's financial sector, the challenges it poses and recommends strategies to ride over those challenges and reap in the benefits of financial liberalization.
