Financial Infrastructure of India

The study attempts to measure the level, and the growth of, financial development of India over a period of 50 years - from 1951 to 2000 through an 'Index of Financial Infrastructure'. Financial infrastructure is an 'umbrella term' involving a variety of financial institutions, instruments and markets providing finance and finance-related services. Therefore, it cannot be measured by any one of the variables therein. For constructing the 'financial broadening' and 'financial deepening' are taken into account. On the basis of these two indices financial infrastructure index of each component of the financial infrastructure, viz., Reserve Bank, co-operative banks, commercial banks, non-bank financial institutions, money markets, capital markets and interest rate structure in the economy is designed by assigning appropriate weights to these components. Then, a 'Grand Index of Financial Infrastructure' (GIFI) in India is constructed by averaging the indices of all components of the financial infrastructure of the country. This Grand Index reflects the overall financial development in India over the last fifty years. Due to non-availability of time-series data on some variables since 1951, they have been dropped for the purpose of the construction of financial infrastructure index of India. Finally, to study the relationship between economic development, capital formation and financial development, a regression is run by taking economic development as dependent variable, and capital formation and financial development as explanatory variables.