Economic Survey says financial regulators must balance growth, stability amid global volatility

The Economic Survey 2025–26 says India’s financial sector regulators must continue to balance the twin objectives of supporting economic growth and safeguarding financial stability, amid increasing exposure to volatile global capital flows and external shocks.

The Survey notes that greater financial integration with global markets has raised the speed and scale at which global developments transmit to the domestic economy.

In this context, it highlights the need for regulators to remain open to foreign capital while maintaining adequate safeguards to protect the financial system from sudden reversals, spillovers and periods of global stress.

According to the Survey, India’s financial system is marked by significant diversity across institutions, markets and financial products.

Given this heterogeneity, it says that regulatory oversight should not follow a uniform approach. Instead, the Survey calls for differentiated supervision, with closer monitoring and tighter controls for emerging, fast-growing or structurally fragile segments that are more susceptible to excessive risk-taking, while allowing greater regulatory flexibility for mature and well-established market segments.

The Survey observes that Indian financial sector regulators have, so far, managed this balancing act effectively. It points out that the financial system has remained stable despite global monetary tightening, geopolitical tensions and episodes of financial stress in advanced economies.

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Strong prudential frameworks, improved supervision and timely regulatory interventions have helped preserve macro-financial stability.

At the same time, the Survey cautions that regulatory challenges are becoming more complex as financial innovation accelerates and cross-border capital flows expand. It notes that overly restrictive regulation could constrain credit growth and innovation, while insufficient oversight could increase systemic vulnerabilities.

The Survey says that sustaining financial stability while supporting long-term growth will require regulators to remain adaptive and forward-looking, with regulatory frameworks that evolve in line with market maturity, risk profiles and changing global financial conditions.

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