Growth in the real sector must drive the financial sector, and not vice-versa, Reserve Bank of India Governor, D Subbarao, said on Tuesday. However, development of the financial sector was necessary to support growth in the real sector, he added.
“In the pre-crisis euphoria of financial alchemy, we forgot that the goal of all development efforts is the growth of the real economy, and that the financial sector is useful only to the extent it helps deliver stronger and more secure long-term growth,” Subbarao said, while speaking at an event organised by the Centre for Advanced Financial Research and Learning.
He said in the pre-crisis period of 2008, the financial sector kept yielding profits consistently, leading to a notion that this would continue. However, over a period of time, the financial sector grew out of alignment with the real world.
Subbarao said robust growth did not necessarily attract equity flows into a country. In the Indian context, the financial sector did not have a pro-equity bias, he added.
