Alfred Schipke: India’s Financial System and Takeaways for China
Jul 10-2024
India has taken steps to finetune its framework for the country’s firms to resolve debts, but the framework is still relatively inefficient and needs further refinement, said Alfred Schipke, NSD Adjunct Professor, in the third symposium by the NSD’s monetary group, which was held on June 26. The event marked the 187th edition of Langrun Policy Talk and was part of a series of lectures by renowned scholars in celebration of the 30th anniversary of the NSD.
Previously, Prof. Schipke was China Representative of the International Monetary Fund (IMF) and Director of NUS East Asia Institute. In his lecture ‘India’s Financial System and Takeaways for China’, he first introduced India’s macro-economic and financial backgrounds. As the third largest economy in the world (after China and the USA), India contributes 15% of global economic growth. Between 1991 and 2019, its annual growth rate hit 6.6%; over the last 15 years, about 400 million Indians have move above the poverty line. In recent years, India has suffered adverse impacts caused by international factors (global financial cycles, among others) and domestical ones (2018 non-banking financial institutions’ crisis), while actively conducting domestic institutional reforms (flexible inflation targets). In the future, India needs to deepen the reform of its financial system to support growth, as well as enhance the efficiency of credit allocation and safeguard the stability of the financial industry.
Prof. Schipke then dissected recent structural changes to India’s financial system. Its state-owned banks still dominate the financial system, accounting for 60% of its overall banking size and causing efficiency loss. However, the system has taken on fresh structural changes: non-banking financial institutions have continuously risen in importance; marketized financing has been gaining popularity; digital technology has been tapped to spur inclusive finance and develop central bank’s digital currency; green finance has further developed and India’s ESG market has started to grow.
Prof. Schipke also analyzed the connections between India’s financial system and the international society, before touching upon its recent acts of reform. India is gradually relaxing controls on capital account, resulting in more swings in capital movement. Meanwhile, it has taken steps to improve the framework for defusing excessive corporate debts, which benefits resource allocation, but the framework is still in need of optimization. As for monetary policy, India’s central bank has set store by communications with the market: its flexible inflation targets improve the anchoring for inflationary expectations; meanwhile, its forward guidance alleviates uncertainties and, during the pandemic, provided solid support to asset prices.
The symposium was hosted by Yu Changhua, NSD Associate Professor, and attended by faculty members and students, including Prof. Huang Yiping, NSD Dean; Hu Jiayin, NSD Assistant Professor; and He Xiaobei, NSD Assistant Research Fellow.
