Financial vs Non-Financial Regulation: Striking the Right Balance

Chief Economic Advisor V Anantha Nageswaran highlighted the need for distinguishing regulations between financial and non-financial sectors. At the CII Global Economic Policy Forum, he noted that excessive risk-taking in the financial sector demands careful regulation to prevent instability, unlike the non-financial sector where market forces suffice.

Speaking at the CII Global Economic Policy Forum 2024, Chief Economic Advisor V Anantha Nageswaran emphasized the importance of distinguishing regulations in financial and non-financial sectors. He warned that competition in the financial sector often spirals into excessive risk-taking, threatening stability and leading to potential systemic crises.

In contrast, Nageswaran argued that non-financial sectors typically rely on market forces to regulate themselves, with the exception of natural utilities where customer interest protection is imperative. He stated that in most cases, non-financial sectors do not require heavy regulatory intervention.

Nageswaran pointed to the 2008 global financial crisis as a historical example of how lack of proper regulation in the financial sector can lead to severe consequences. He stressed the need for balanced regulation to ensure stability and prevent the need for state bailouts in the future.

(With inputs from agencies.)