The Indian Financial System carries out a vital role in economic development of the country through saving and investment method. It is known as Capital formation.
The Indian financial system consists of two parts, the Indian money market and the Indian Capital market.
The Indian money market: Market in which short-term funds are borrowed and lent.
Indian money market is classified into Organised sector & Unorganised sector.
The Organised sector consists of the Central Bank of India (RBI), the Commercial banks, Co-operative Banks, Foreign banks etc.
The unorganised sector consists of indigenous bankers.
The Indian capital market : Market for medium term and long term funds.
The Capital market of India includes Government Securities, Industrial securities market and Development financial institutions like IDBI, ICICI, UTI etc.
Monetary policy is the technique by which fiscal authority of India, particularly the RBI manage the distribution of money to the people by its control over interest rates so as to keep price constancy and accomplish high economic growth.
In India, the central monetary authority is Reserve Bank of India.
Major Monetary operations: Bank Rate, Open Market Operation, Statutory Liquidity Ratio, Cash Reserve Ratio.
New Economic Policy
The new economic reforms were launched in 1991 during the period of P.V. Narasimha Rao government.
Father of Indian Economic Reforms: P.V. Narasimha Rao.
The main reason to start new economic policy is Gulf War and problem of balance of payment in India.
First Generation Reforms were aimed at Stabilisation of Indian economy and were macro level in nature. It includes liberalisation and deregulation of industry; financial sector reforms, taxation reforms etc. Second Generation Reforms aimed at structural changes and are micro level in nature. It includes labour reforms, land reform, cap-ital market reforms, expenditure reforms and power sector reforms etc.
Three main objectives of new economic policy were: 1. Liberalisation, 2. Privatisation & 3. Globalisation.
Privatisation: To increase participation of private sector in the public sector companies by capital investment or by management or both 3r to hand over a public sector unit to a private company is called Privatisation.
Liberalisation: Liberalisation is the process by which government control is relaxed or abolished. In this process privatisation is also included.
Globalisation: The process of amalgamation of an economy with world economy is called Globalisation.
It is signified by lower duties on import and export. By doing so, that sector will also get private capital and foreign technology.
Disinvestment means to decrease the share of government in the industries.
Disinvestment Commission was established in 1996. It was constituted to review, give suggestions and make regulations on the issue of disinvestment.
First Chairman of Disinvestment Commission is G.V. Ramakrishna.
Disinvestment Commission was aimed to reduce or mitigate fiscal deficit, bring about a measure of economic stabilisation or to improve efficiency in public enterprises through structural adjustments initiated to improve their efficiency and productivity.
The Commission was reconstituted for a period of two years under R.H. Patel in 2001.
The commission was wound up in October 2004.
National Renewal Fund was established on February 3rd 1992. It was constituted for rehabilitation of displaced labourers of sick industrial units affected due to industrial modernization, technological development etc.
Economic Committees
Narasimham I & II – Banking Sector reforms
Raja Chelliah – Tax Reforms
Vijay Kelkar – Direct and Indirect Tax Structures
Indira Goswami – Industrial Sickness
RS Sarkaria – Central State relationship
Madan Mohan Punchhi – New Commission or Centre-State relation
Swaminathan – Agricultural reforms
Asoka Mehta – Reforms in Panchayati Raj
Prof.Sukhamoy Chakravarty – Studied to review the working of Indian Monetary System.
Sen – Decentralisation of powers to Panchayati Raj Institutions.
L.C.Gupta – Trading of shares
G.V.Ramakrishna – Disinvestment Commission
Malhotra Committee – Insurance Privatisation
Tendulkar Committee – Identifying people Below the Poverty Line (BPL)
