BMI View: The administration of Prime Minister Narendra Modi is seeking to press ahead with furtherreforms to deal with constraints on growth, ranging from the high level of bad debt in the banking sector toIPOs of state-owned insurers and the rationalisation of the number of mutual fund schemes. Much willdepend on developing financial services for the vast number of Indians that work in the informal sector andhave only a rudimentary understanding of, and poor access to, services.
Recent Trends And Developments
The financial sector's gross value added (GVA) is set to rise from USD113.5bn in 2016 to USD293.8bnby 2026 with growth peaking at 14.6% in 2017 before falling to around 9.5% over the rest of the forecastperiod.
The government's privatisation programme, which includes the sale of stakes in the insurance industry,will fuel growth in equities, which are the main asset class in mutual funds. However, the pace ofdivestment will be slower than the government's targets with legislative hurdles among the areas ofresistance. In addition, over-valuation of assets could see divestments fail to reach the INR725bn targetedin the budget for FY2017/18.