Article at a glance:

Reforming India's financial system

• Despite an underdeveloped financial system, India's economy has made great progress.
• India's financial sector is much more effective than its Chinese counterpart at allocating capital, bad debt seems to be under control, and the market share of more efficient private and foreign banks is creeping up.
• India must do better at mobilizing savings, for Indians are the world's largest purchasers of gold, holding $200 billion worth—equal to nearly half of the country's bank deposits.
• The country can take steps such as reducing its fiscal deficit, encouraging consumers to use banks, cutting the cost of bank intermediation, and developing the capital markets.