Growth needs external push: Mohan

Economic Affairs Secretary Rakesh Mohan today said there was a need to continue the process of integration of capital markets and increase competition by facilitating the entry of more institutional investors in order to sustain the present level of economic growth.

Addressing a session on money markets, Mohan said a review of the financial sector over the last 10-12 years had clearly shown there was a need to continue the pace of reforms and open up the external sector while keeping an eye on financial stability particularly since "India is about the only emerging market which has not suffered financial instability while adopting market reforms".

"What we need to do is to work harder in every segment of the financial sector to inject greater competition.We need more private sector players in every segment of the financial sector. We need many more institutional investors in the economy. The present institutional investors are mostly foreign players, there is a lack of domestic investors," he said, adding that while subscription to mutual funds (MFs) had increased last year, the participation of MFs in the equity market was minimal.

"Nearly 85 per cent of MFs went to the debt market mainly, comprising government securities," he said while pointing out there was a need to examine why the MFs had deprived the retail investors of the benefits of the equity market.

Mohan said the private sector savings rate in India was the highest in Asia but it was on the public sector dis-savings side that the difference was stark. The public sector dis-savings in India is -2 per cent of the GDP while in most Asian countries it is between 7-10 per cent of the GDP.

"Given the level of private sector savings, even if we can get back to the level of public sector dis-savings 5-7 years ago, we can raise funds for sectors like infrastructure. This is important since public sector participation is vital in infrastructure. Better revenue collection by the government and public sector savings over the next 5-10 years would mean more resources being available," he said.

Mohan said constant innovations were needed in different segments of the financial markets to create efficient products for the financial sector.