The paper highlights the role of the financial sector in achieving sustained economic growth. It argues that an efficient financial system is very much essential for improving the saving and investment activity and for promoting the overall productivity in the economy. In this context. the paper reviews various efficiency parameters for evaluating the performance of the financial system and the causal link between financial development and economic growth. In India financial sector reforms introduced since 1992-93 have been aimed at removing the various external and internal constraints which affected the efficiency of the financial system. While discussing the rationale and relevance of financial sector reforms the paper specifically discusses the nature and extent of government intervention. interest rate deregulation. prudential norms and directed credit. The paper concludes that various reform measures in India have laid the foundation for an efficient and well functioning banking system which will support and strengthen a high level of real growth in future.
