Ajay Chhibber (George Washington University)
Abstract: India’s financial system has never collapsed – unlike many other emerging economies. But it suffers from a deep and expanding silent crisis, which has made it one of the most inefficient and non-inclusive financial systems in the world. This paper unravels the reasons for this deep crisis – who is responsible – the regulators, populist politicians, crony capitalists and India’s fiscal dominance. It shows that all the above are culpable. It lays out the major reforms needed and argues that if deep surgery is not performed India cannot emerge as a global economic powerhouse in the 21st century and will remain stuck in a low middle-income trap.
JEL Codes: G00, G01, G18, G21, G32, G33
Key Words: Financial Crisis; Public Sector Banks; Financial Inclusion; Banking Reform