M-RCBG Associate Working Paper No. 212

The Past & Future of Indian Finance

Ruchir Agarwal


India’s growth story depends on the vitality of its financial system. Within the span of five years, the Indian economy has endured two unprecedented shocks: the 2019 economic slowdown triggered by a financial crisis, and the COVID-19 pandemic. As we navigate the aftermath of these episodes, one vital question emerges: how resilient will India’s financial system be in the face of future challenges? This paper embarks on three missions. First, it dissects the origins and aftermath of the Indian Financial Crisis of 2018-20, sparked by a run on the shadow banks. Second, it examines how India fortified its financial system in the wake of this financial crisis and the pandemic, consequently shielding itself from the global banking disruptions of 2023. Finally, it gazes ahead at potential challenges and opportunities, sketching a blueprint for key reforms. Overall, the future trajectory of India’s economic growth, whether a modest 5.5% or a bold 7.5%, rests significantly on the progress of ongoing financial sector reforms.

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