El lenguaje. Origen

The role of the Indian fi nancial system in capital accumulation and formation can be best guaged by cer-tain fi nance-deepening ratios. The fi nancial development of a country is studied by examining changes in the following ratios which were constructed by Goldsmith (1969).

Finance Ratio (FR) It depicts the process of fi nancial deepening in the economy. It is an indicator of the rate of fi nancial development in relation to economic growth. It is a ratio of the total issues consisting primary and secondary claims in relation to the national income.

Total financial claims Total issues

FR = Net income = Net national product at factor cost

Financial Inter-relation Ratio (FIR) It refl ects the proportion of fi nancial issues with respect to net capital formation in the economy. It refl ects the relationship between the fi nancial structure and the real-asset structure of the economy. In other words, the relationship between fi nancial development and capital formation is best captured by this ratio.

Financial assets Total issues

FIR = Physical assets = Net domestic capital formation

New Issue Ratio (NIR) It is the ratio of primary issues to net domestic capital formation. It measures the proportion of primary claims issued by non-fi nancial institutions to net capital formation. In other words, NIR indicates how far direct issues to the savers have fi nanced the investment by the investing sectors.

Primary issues Primary issues

NIR = Net physical investments = Net domestic capital formation The Total Flow of

TABLE 2.3 Financial Flow by Sectors (Rs in Crore) No. Sectors 1990–91 1991–92 1992–93 1993–94 1994–951995–961996–971997–981998–991999–20002000–01 Banking 39,82857,48159,87482,1091,16,21773,49587,5851,40,6161,77,0551,54,4331,88,4951. (23.8)(24.1)(28.5)(27.2)(28.3)(19.0)(21.5)(23.3)(27.5)(26.5)(24.2) 2.Other Financial31,18848,90535,91660,78870,45866,84298,0541,00,2681,00,4431,19,3271,06,270 Institutions (18.6)(20.5)(17.1)(20.1)(17.2)(17.3)(24.0) (15.6) (15.6) (20.5) (13.6) 3.All Financial71,0161,06,386 95,790 1,42,897 1,86,675 1,40,3371,85,6382,40,8842,77,4982,73,7542,94,765 Institutions (1+2)(42.4)(44.6)(45.7)(47.3)(45.5)(36.3)(45.5)(40.0)(43.1)(47.1)(37.8) 4.Private Corporate27,535 57,662 39,614 44,167 1,11,876 1,36,24491.6331,06,8501,32,74579,6741,82,126 Business (16.4)(24.2)(18.9)(14.6)(27.3)(35.2)(22.5)(17.7)(20.6)(13.7)(23.4) 5.Government 66,756 61,006 63,145 81,371 71,80184,98583,6752,10,1451,89,9621,77,6122,20,669 (39.8)(25.6)(30.1)(26.9)(17.5)(22.0)(20.5)(34.9)(29.5)(30.5)(28.3) 6.Rest of the World –7,050 7,252 – 3,52119,121 15,0646,76528,84919,65016,98614,60249,888 (–4.2)(3.0)(–1.7)(6.3)(3.7)(1.7)(7.1)(3.3)(2.6)(2.5)(6.4) 7.Households 9,267 5,99814,752 14,541 24,77118,62018,19425,36527,36736,06731,778 (5.5)(2.5)(7.0)(4.8)(6.0)(4.8)(4.5)(4.2)(4.2)(6.2)(4.1) 8.All Non-fi nancial96,5081,13,198 1,13,990 1,59,200 2,23,512 2,46,6142,22,3513,62,0093,67,0613,07,9564,84,461 Institutions (4 to 7)(57.6)(55.4)(54.3)(52.7)(54.5)(63.7)(54.5)(60.0)(56.9)(52.9)(62.2) 9.Total Claims Issued (3 + 8)1 ,67,524 2,38,304 2,09,780 3,02,097 4,10,187 3,86,9514,07,9906,02,8936,44,5585,81,7157,79,225 Note:Figures in parentheses are a percentage share of the total fi nancial fl ow. Source: RBI Bulletin, September 2007 21

TABLE 2.3(A) Financial Flows by Sectors

Sectors 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08

1. Banking 2,09,044 2,75,497 2,95,078 3,74,411 4,60,259 5,98,267 8,30,477

(21.9) (27.2) (26.6) (31.9) (29.9) (28.5) (28.5)

2. Other Financial Institutions 93,592 1,36,798 1,46,635 1,21,474 2,17,832 2,14,032 4,55,605

(9.8) (13.5) (13.2) (10.4) (14.1) (10.2) (15.6)

3. All Financial Institutions (1 + 2) 3,02,636 4,12,295 4,41,713 4,95,885 6,78,092 8,12,299 12,86,082

(31.7) (40.8) (39.9) (42.3) (44) (38.7) (44.1)

4. Private Corporate Business 2,86,571 1,16,756 1,04,042 1,34,310 3,08,172 6,77,979 8,86,994

(30) (11.5) (9.4) (11.4) (20) (32.3) (30.4)

5. Government 2,52,555 3,58,063 3,49,987 2,97,930 2,68,654 2,01,949 1,92,381

(26.4) (35.4) (31.6) (25.4) (17.4) (9.6) (6.6) Note: Figures in parentheses indicate percentage shares to total Claim.

Source: RBI, Bulletin, Supplement, Flow of Funds Accounts of the Indian Economy, 2001–02 to 2007–08, October 2009.

TABLE 2.4 Primary and Secondary Issues

(Rs. in Crore)

1970–71 2,336 (39.7) 3,541 (60.3) 3,479 (59.2) 62 (1.1) 5,877

1975–76 6,733 (42.8) 8,999 (57.2) 8,125 (51.6) 874 (5.6) 15,732

1980–81 14,731 (40.7) 21,452 (59.3) 21,408 (59.2) 44 (0.1) 36,183

1985–86 30,558 (42.1) 42,006 (57.9) 43,698 (60.2) –1,692 (–2.3) 72,564

1990–91 71,016 (42.4) 96,508 (57.6) 1,03,558 (61.8) –7,050 (–4.2) 1,67,524

1991–92 1,06,386 (44.6) 1,31,916 (55.4) 1,24,664 (52.3) 7,252 (3.0) 2,38,302

1992–93 95,790 (45.7) 1,13,990 (54.3) 1,17,511 (56.0) –3,521 (–1.7) 2,09,780

1993–94 1,42,897 (47.3) 1,59,200 (52.7) 1,40,079 (46.4) 19,121 (6.3) 3,02,097

1994–95 1,86,675 (45.5) 2,22,512 (54.5) 2,08,448 (50.8) 15,064 (3.7) 4,10,187

1995–96 1,40,337 (36.3) 2,46,614 (63.7) 2,39,849 (62.0) 6765 (1.7) 3,86,951

1996–97 1,85,638 (45.5) 2,22,351 (54.5) 1,93,502 (47.4) 28,849 (7.1) 4,07,989

1197–98 2,40,884 (40.0) 3,62,009 (60.0) 3,42,359 (56.8) 19,650 (3.3) 6,02,893

1997–98 2,77,498 (43.1) 3,67,061 (56.9) 3,50,075 (54.3) 16,986 (2.6) 6,44,559

1998–2000 2,73,759 (47.1) 3,07,956 (52.9) 2,93,354 (50.4) 14,602 (2.5) 5,81,715

2000–01 2,94,765 (37.8) 4,84,461 (62.2) 4,34,573 (55.8) 49,888 (6.4) 7,79,226

Note: Figures in parentheses indicate percentage shares to total claim.

Source: RBI, Report on Currency and Finance, 1999–2000, pp. III-4. Flow of Funds Accounts of the Indian Economy, RBI Bulletin, September 2007

TABLE 2.4(A) Primary and Secondary Issues

2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08

1. Secondary Issues# 3,02,636 4,12,295 4,41,713 4,95,885 6,78,092 8,12,299 12,86,082 2. Primary Issues## 6,52,984 5,98,771 6,65,771 6,77,199 8,62,361 12,86,476 16,31,905 2.1 Domestic Sectors 5,90,853 5,35,123 5,24,011 5,52,807 7,60,250 10,56,715 12,52,510 2.2 Rest of the World 62,131 63,648 1,41,760 1,24,392 1,02,111 2,29,761 3,79,395 3. Total Issues (1 + 2) 9,55,620 10,11,067 11,07,484 11,73,084 15,40,452 20,98,776 29,17,987 4. Net Domestic Capital

Formation@

2,92,359 3,67,528 4,79,277 6,82,171 8,92,318 10,84,768 13,36,064

5. National Income** 18,49,361 19,94,217 22,37,414 25,26,285 28,75,958 33,12,569 37,87,596

# Refers to issues by fi nancial intermediaries (i.e., Banks and Other Financial Institutions).

## Refers to issues by all sectors other than fi nancial intermediaries.

@ At Current Prices.

** Net National Product at Factor Cost at Current Prices.

Source: RBI, Bulletin, Supplement, Flow of Funds Accounts of the Indian Economy, 2001–02 to 2007–08, October 2009.

TABLE 2.4(B) Financial Flows by Type of Instruments

Instruments 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08

1. Currency and Deposits 2,00,220 (b) Other Securities of which: 1,71,937

(18) 8. Foreign claims not elsewhere

classifi ed 9. Other claims not elsewhere

classifi ed 10. Total Claims Issued 9,55,620 10,11,067 11,07,484 11,73,084 15,48,917 20,98,776 29,17,987 Note: Figures in brackets are percentages to Total Claims Issued.

Source: RBI, Bulletin, October 2009.

TABLE 2.5 Flow of Funds-based Indicators of Financial Development in India

Year Finance

Ratio

Financial Inter-relations Ratio

New Issue Ratio

Intermediation Ratio

1970–71 to 1974–75 0.168 1.379 0.788 0.770

1975–76 to 1979–80 0.274 1.818 1.042 0.743

1980–81 to 1984–85 0.344 2.421 1.429 0.690

1985–86 to 1989–90 0.400 2.402 1.401 0.721

1990–91 0.401 1.745 1.005 0.736

1991–92 0.497 2.922 1.618 0.806

1992–93 0.384 2.183 1.186 0.840

1993–94 0.473 2.825 1.489 0.898

1994–95 0.50 2.53 1.38 0.84

1995–96 0.41 1.96 1.25 0.57

1996–97 0.37 2.05 1.12 0.83

1997–98 0.49 2.53 1.52 0.67

1998–99 0.45 2.67 1.52 0.76

1999–2000 0.37 1.81 0.96 0.89

2000–2001 0.46 2.57 1.60 0.61

2001–02 0.52 3.27 2.23 0.46

2002–03 0.51 2.75 1.63 0.69

2003–04 0.49 2.31 1.39 0.66

2004–05 0.46 1.72 0.99 0.73

2005–06 0.54 1.73 0.97 0.79

2006–07 0.63 1.93 1.19 0.63

2007–08 0.77 2.18 1.22 0.79

Source: RBI Bulletin 2007 and Bulletin,Supplement, Flow of Funds Accounts of the Indian Economy, 2001–02 to 2007–08, October 2009.

Intermediation Ratio (IR) It is the ratio of secondary issues to primary issues and indicates the importance of fi nancial intermediaries in channelising fi nancial resources. It depicts the institutionalisation of fi nancing in the economy. It is the ratio between the fi nancial claims issued by the fi nancial institutions and the fi nancial instruments issued by non-fi nancial institutions.

Total secondary issues IR =

Total primary issues

As indicated in Table 2.5 all four ratios signifi cantly increased from 1970–71 to 1995–96. The FR increased from 0.401 in 1990–91 to 0.52 in 2001–02 and 0.77 in 2007–08. This indicates a deepening of the fi nancial markets leading to a marked rise in the institutionalisation of fi nancing investment. It also refl ects increasing separation between the acts of saving and investment.

The FIR signifi cantly increased in the 1990s, the range being 1.75 to 2.87. This indicates that the fi nancial structure in India grew more rapidly than the national income and there was a higher level of participation of the fi nancial system in capital formation. The FIR ratio declined during 2004–05 and 2005–06 on account of increase in investment activity and a decline in the claims issued. The FIR signifi -cantly improved during 2007–08.

The NIR which was at a high of 1.618 in 1991–92 declined to 1.161 in 1994–95 before increasing to 1.35 in 1995–96. This downward movement refl ects sluggish capital market conditions and the importance of intermediation in the Indian economy. The NIR ranged between 0.97 and 2.23 from 2001–02 and 2007–08.

The importance of fi nancial intermediaries in channelising the fi nancial resources is refl ected in the IR which touched an all-time high of 0.89 in 1999–2000. It refl ects higher involvement of the fi nancial inter-mediaries in secondary issues as compared to primary issues, and importance of fi nancial interinter-mediaries such as banks and fi nancial institutions in fi nancing real activities.

All four ratios exhibit the growing importance of fi nancial intermediation in the economy and the growth of fi nancial fl ows in relation to economic activity both in the form of direct and indirect fi nance.

This growth indicates a deepening and widening of the Indian fi nancial system.