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What Will Be the Outlook of Finance Sectors in India?
Finance sectors have been hit by the global recession badly and are expected to take a beating as the recession persists in the U.S. This is the seventh successive stimulus package taken since the outbreak of the global recession and the biggest to date. In aggregate, passed COVID-19 financial legislation is $5.2 billion. The swift action by the federal government in terms of fiscal and monetary policy initiatives during the last year has aided credit quality across U.S. financial markets and therefore the scheme offers direct and significant support to many.

A major portion of the seven trillion dollar market value of the finance sector is driven by banks. It is estimated that nearly seven trillion dollars in credit is extended by non-bank financial institutions such as money-granting companies, central banks, and mortgage banking institutions to finance their operations. Most of the financing has been received from credit cards and consumer loans. As banks have scaled down their operations to save cash, some of them have also started trading in asset-backed securities, such as government bonds. The level of hedging in the portfolios of banks and other institutions has thus declined.

However, this measure has not helped in reducing the burden of credit on finance sectors as a whole. For this reason, finance sectors have continued to witness a slowdown in investment. As the global economy picks up from recession, finance sectors are expected to pick up from hereon. The U.S. authorities too are giving financial wings to the money market.

The key to sustainable development lies in boosting corporate spending through efficient use of financial instruments, especially those that are not risk-based. A major part of the finance sector is yet to make use of the tools that can track and regulate spending. Some of these instruments include taxation and regulation. Finance sector cannot develop until it has understood and maximized its use of non-financial tools and instruments.

In the recent economic recovery, finance sectors have taken up a comprehensive policy approach towards improving their credit quality. The three strands of policy, namely, debt management, structural adjustment and monetary policy, form a comprehensive package aimed at achieving sustainable economic recovery. Among these policies, debt management has been the most successful in bringing down the burden of unsecured liabilities and improving credit quality. Debt management has been an essential policy initiative for finance sectors in India since the outbreak of the global recession.

There is no doubt that the decision to reduce risks by allowing more risk-free assets for finance sectors is one of the foremost moves to be taken in the aftermath of a global economic slowdown. However, the biggest obstacle that comes up in the way of timely and meaningful implementation of this decision lies in the fact that only a fraction of Indian citizens (only around 10% of Indians are engaged in any form of financial transactions) know about the benefits that they will enjoy when banks adopt cloud computing. For those who do know about it, the benefits are yet to materialize. Only a small percentage of the borrowers have even heard about the advantages that can be derived from cloud computing.

As per the latest estimates, there is an increase of investment in IT, project development and acquisitions that will take place in the next two years. The number of employees who will take up these projects will also rise. This implies that the finance sectors will have to create new business models that can cope with the competition that the emerging IT companies will bring. The IT market is expanding at a phenomenal rate and it is only a matter of time before it will claim the entire IT market share in India. The IT boom in India is already underway and will continue to increase at a tremendous rate until at least the end of this calendar year. The Indian economy will witness a significant change, particularly in the area of infrastructure and technology, after the government's decision to open up 100 new technology parks.

There are several indicators that point to a possible inflection in the finance sector in the next five years. The two big indicators that point towards this growth are retail and wholesale finance. As per the latest Statistics India report, retail trade was growing at a rapid rate in the last three years, while wholesale trade was contracting for the first time in the past decade. The second biggest indicator that points towards the growth of finance in the coming years is the absorption of new business in the finance sector by both domestic and foreign corporations. At present, almost all the foreign corporations are either entirely aware of the benefits of investing in finance in India or are entering into large-scale investments that are creating a buzz around the country.
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