Thedevelopments in the Indian Financial System from 1900-2017:Indianfinancial system plays a major role in developing the Indian economy. Indianfinancial system acts as intermediary agent between surplus and deficit stateand facilitates the flow of funds among them. Indian financial system suppliesfunds to the deficit to improve various sectors of the economy by utilizing theresources without destabilization.Indianfinancial reforms were started with the Narasimham committee recommendations,which increased the level of financial system in India. These reforms improvedthe banking sector, financial institutions, capital market, and money marketwhich formed the strong financial sector in India.
These reforms helped informing new private sector banks with long term lending institutions tocarryout banking activities and deregulation of interest rates, etc. Manychanges were adopted by the financial system to improve the economy of India. Due to these changes, the banking sectorimproved and increased more in recent years. The financial system createsbridge between the persons who have excess finance and the persons who requirethe finance to improve the investment opportunity that leads to economicgrowth. The various changes in the financial system improved the country inindustrializing which increased the level of GDP.Thefinancial system improved the living standard of the people to acquire theluxury things by providing funds to them. The industrialization in India isachieved due to the financial system which helps in increasing the productionand financial capital of a country.
The financial market improved the economicgrowth by giving funds to the most efficient investors, and by encouraginginnovations. The financial system also enhanced the corporate sector, bymonitoring the management and improving the corporate control. The financialinstitutions lend funds to the individuals, farmers, industrialists andentrepreneurs by collecting savings from the people.TheIndian financial system includes commercial banks, insurance companies,non-banking financial companies, co-operatives, pension funds, mutual funds andother small financial entities. Banks plays an important role in developing theeconomy, by improving the industry and trade activities. It acts as a custodianof the wealth and resources of the country which improves the economic growth. Thefinancial system also improved the gross domestic savings and gross domesticproduct of the economy and projected its growth in the upcoming years.
Most ofthe household savings in India are invested in the bank deposits and otherfinancial assets. In 2015, India’s GDP growth increased compared to china dueto the efficiency in financial system which proves the country as developingeconomy. The government of India introduced many reforms to regulate andenhance the economy by improving primary, secondary and tertiary sectors.
The Government and Reserve Bank of India havetaken various measures to facilitate easy access to finance for largeenterprises, Micro, Small and Medium Enterprises (MSMEs), farmers and alsotertiary sectors.Thegovernment of India helps in developing many reforms which allows foreigninvestors to access Indian bond markets. The financial market in India worksefficiently in providing the growth at a minimal cost. In the pre-IndependenceIndia, the colonial system brought a considerable change in the process oftaxation which resulted in economic breakdown.
In the pre-Independence India,British made improvements in the country. The financial system establishedbanking system and free trade in the economy. It also established a singlecurrency system with exchange rates, standardization of weights and measuresand also a capital market came into existence.Afterindependence-1990:Afterindependence, many reforms and policies were formulated to stabilize theeconomic growth of the country.
These reforms were developed to increase thequality and quantity of the export items, making the country self-sufficientand minimize the imports. Green revolution movement was formed afterindependence to develop the productivity of agricultural sector. Developmentswere made in sectors such as agriculture, village industries, mining, defenseand so on. New roads were built, dams and bridges were constructed, andelectricity was spread to the rural areas to improve the standard of living.1990-present:Inthe year 1980s the government made a first step towards liberalization plan.Due to this liberalization plan, India became market-based system. In theliberalization plan, foreign direct investments were formed, public monopolieswere abolished and service sectors were developed.
In this reforming phase ofIndia, the economy faced tremendous growth and became the second fastestgrowing economy in the world. It also increased the GDP growth rate, per-capitaincome, standard of living and industrial development. These reforms helped theIndian economy in purchasing power and exchanging rates.Pre1990s:TheBanking systems and stock markets helped in reducing the poverty and level andincreased the economic growth. The government employed a credit rationingpolicy favoring certain priority sectors with loans at subsidized interestrates. The MRTP Act (Monopolies and Restricted Trade Practices Act) managed incontrolling the private investments and its scale of operation. The CapitalControl Act regulated securities market to determine the procedure of raisingmoney according to instruments.
In Pre 1990s, The RBI conducted foreignexchange transactions with no other intermediaries in the foreign market. Thereforms ensured the growth of the Indian financial sector that will culminatein a strong and transparent system.After1990s:Before 1992, thegovernment had the direct control over the capital markets, after that period,SEBI (Securities Exchange Board of India) took over the control of capitalmarkets in India. The Securities Exchange Board of India enhanced newregulatory frameworks to strengthen the protection of investors.
In 1993, Indiabegan to use Global Depository Receipts (GDRs). This opened the capital marketto Foreign Institutional Investors (FIIs) and Indian companies to raise capital abroad by issue of equity.