Inter-linkages between the insurance and banking sectors are a matter of concern, with many insurance companies being part of the financial conglomerates, the Economic Survey has said.
The Survey, which is seen as the best commentary on Indian economy, has called for efforts to build firewalls to prevent contagion from one sector to another, especially in times of stress.
Although the Indian insurance sector is well capitalised, it is significantly exposed to the banking system, the Survey has pointed out.
The ability to raise capital and adequate reinsurance capacity are expected to be an important determinant for the insurance sector’s stability, according to the Survey.
The Economic Survey has cautioned that any liberalisation of external commercial borrowing has to keep in view the need to maintain sustainable levels of external debt ratios. This is more important because of the fact that high levels of external debt ratios contributed to the balance of payments crisis of the early 1990s.
An important reason India emerged largely unscathed from the global crisis of 2008 is the strict ECB policy that places all-in-cost, end-use and maturity restrictions on foreign borrowings by corporates, the Survey has said.