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Financial Reforms In India

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ELEMENT OF FINANCIAL SERVICES
CES-1

MALIKA BATRA
0151BBA223
BBA-V-D

QUESTION: Briefly explain the changes happened in Indian financial system after 1991 and also describe the impact on financial services.

ANSWER: The strategy of reforms introduced in India in July 1991 presented a mixture of macroeconomic stabilization and structural adjustment and It was guided by short-term and long-term objectives. Stabilization was necessary in the short run to restore balance of payments equilibrium and to control inflation. At the same time changing the structure of institutions themselves through reforms was equally important from long term point of view.
The new government moved urgently to the implement a programme of macroeconomic stabilization …show more content…

• Industrial Policy Reforms: In order to consolidate the gains already achieved during the 1980s, and to provide greater competitive stimulus to the domestic industry, a series of reforms were introduced in the Industrial Policy.
• Trade Policy Reforms: Under trade policy reforms, the main focus was on greater openness. Hence, the policy package was essentially an outward-oriented one. New initiatives were taken in trade policy to create an environment which would provide a stimulus to export while at the same time reducing the degree of regulation and licensing control on foreign trade.
• Promoting Foreign Investment: The government took several measures to promote foreign investment in India in the post-reform period.
• Rationalization of Exchange Rate Policy: One of the important measures undertaken to improve the balance of payments situation was the devaluation of rupee. In the very first week of July 1991, the rupee was devalued by around 20 …show more content…

Financial sector reforms refer to the reforms in the banking system and capital market. In 1991 the banking system and the capital market had shown impressive growth in the volume of operations, they suffered from many deficiencies about their efficiency and the quality of their operations.
The weaknesses of the banking system were extensively analysed by the committee on financial sector reforms, headed by Narasimham. The committee found that banking system was both over-regulated and under-regulated the large proportion of bank funds was preempted by Government through high SLR and a high CRR. Thus, there was a decrease in resources of the banks to provide loans to the private sector for investment.
This step of bank funds by Government weaks the financial health of the banking system and forcing all the banks to charge the high interest rates on their advances to the private sector to meet their needs of credit for investment purposes.
Under these reforms all attempts have been made to make the Indian financial system more viable, efficient, more responsive and improve their allocative efficiency.
According to this financial reforms have been undertaken in all the three segments of the financial

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