India's private sector companies need a more market-oriented playing field in order to contribute fully to the national economy, a McKinsey Quarterly article says. It notes that India's private firms are more productive than their Chinese counterparts, but are hobbled by interest rates that are, on average, twice as much as those in China. Why? Because India's financial system remains under tight government control, suffocating economic performance, the article says.
"...The financial system is inefficient in both of its main tasks -- in mobilizing savings and allocating capital -- Indian borrowers pay more for capital and depositors receive less than they do in comparable economies."
As painful as financial reforms are for India to contemplate, the authors say they are the only way the country can "complete its transition from a poor economy dominated by agriculture to a prosperous one led by services and manufacturing."
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