Context: The Economic Survey 2025 cautions against excessive financialisation in India, warning that it could harm the economy by increasing inequality, debt levels, and over-reliance on asset prices for growth.

About Financialisation

• What it is: Financialisation refers to the growing dominance of financial markets, institutions, and motives in shaping economic policies and outcomes.

• It represents the shift from traditional industrial or productive activities (like manufacturing) to financial activities that involve the trading, management, and speculation of financial assets.

• Financialization transforms the functioning of the economic system at both the macro and micro levels.

Factors leading to it:

• Increased household savings flowing into stock markets.

• Rising participation of retail investors in financial markets.

• Over-reliance on asset prices to offset leverage.

• Policy and regulatory frameworks influenced by financial market considerations.

Implications:

• Rising public and private sector debt.

• Exacerbation of economic inequality.

• Over-dependence on financial markets for economic growth.