Competition in financial sector can lead to excessive risk taking, bringing instability: CEA Nageswaran
«We do need to make a distinction between regulation with respect to financial sector and regulation with respect to non-financial sector of the economy,» Nageswaran said at the CII Global Economic Policy Forum 2024.
«In non financial sectors, excepting natural monopolies or utilities where you have to have a regulator to protect customer interest, you can expect competition to take care of much of the roles that regulators are expected to perform. So as long as you create a competitive environment as close to the theoretical perfect competition, then you are fine,» said the Chief Economic Advisor to Government of India.
He said in non-financial sector, except in case of natural utilities where one needs a regulator to protect customer interest, competition or market forces will take care of what the regulators do.
In financial sector, regulators have the tendency to lean towards excessive regulations, as if things go wrong in this sector the state is expected to bail out and the effects are systemic.
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