The developments in the
Indian Financial System from 1900-2017:
Indian financial system plays a major
role in developing the Indian economy. Indian financial system acts as
intermediary agent between surplus and deficit state and facilitates the flow
of funds among them.
Indian financial system supplies funds
to the deficit to improve various sectors of the economy by utilizing the
resources without destabilization.
Indian financial reforms were started
with the Narasimham committee recommendations, which increased the level of
financial system in India.
These reforms improved the banking
sector, financial institutions, capital market, and money market which formed
the strong financial sector in India.
These reforms helped in forming new
private sector banks with long term lending institutions to carryout banking
activities and deregulation of interest rates, etc.
Many changes were adopted by the
financial system to improve the economy of India.
Due to these changes, the banking sector
improved and increased more in recent years.
The financial system creates bridge
between the persons who have excess finance and the persons who require the
finance to improve the investment opportunity that leads to economic growth.
The various changes in the financial
system improved the country in industrializing which increased the level of
The financial system improved the living
standard of the people to acquire the luxury things by providing funds to them.
The industrialization in India is
achieved due to the financial system which helps in increasing the production
and financial capital of a country.
The financial market improved the
economic growth by giving funds to the most efficient investors, and by
The financial system also enhanced the
corporate sector, by monitoring the management and improving the corporate
The financial institutions lend funds to
the individuals, farmers, industrialists and entrepreneurs by collecting
savings from the people.
The Indian financial system includes
commercial banks, insurance companies, non-banking financial companies,
co-operatives, pension funds, mutual funds and other small financial entities.
Banks plays an important role in
developing the economy, by improving the industry and trade activities. It acts
as a custodian of the wealth and resources of the country which improves the
The financial system also improved the
gross domestic savings and gross domestic product of the economy and projected
its growth in the upcoming years.
Most of the household savings in India
are invested in the bank deposits and other financial assets.
In 2015, India’s GDP growth increased
compared to china due to the efficiency in financial system which proves the
country as developing economy.
The government of India introduced many
reforms to regulate and enhance the economy by improving primary, secondary and
Government and Reserve Bank of India have taken various measures to facilitate
easy access to finance for large enterprises, Micro, Small and Medium
Enterprises (MSMEs), farmers and also tertiary sectors.
The government of India helps in
developing many reforms which allows foreign investors to access Indian bond
The financial market in India works
efficiently in providing the growth at a minimal cost.
In the pre-Independence India, the
colonial system brought a considerable change in the process of taxation which
resulted in economic breakdown.
In the pre-Independence India, British
made improvements in the country. The financial system established banking
system and free trade in the economy.
It also established a single currency
system with exchange rates, standardization of weights and measures and also a
capital market came into existence.
After independence, many reforms and
policies were formulated to stabilize the economic growth of the country.
These reforms were developed to increase
the quality and quantity of the export items, making the country self-sufficient
and minimize the imports.
Green revolution movement was formed
after independence to develop the productivity of agricultural sector.
Developments were made in sectors such
as agriculture, village industries, mining, defense and so on. New roads were
built, dams and bridges were constructed, and electricity was spread to the
rural areas to improve the standard of living.
In the year 1980s the government made a
first step towards liberalization plan. Due to this liberalization plan, India
became market-based system.
In the liberalization plan, foreign
direct investments were formed, public monopolies were abolished and service
sectors were developed.
In this reforming phase of India, the
economy faced tremendous growth and became the second fastest growing economy
in the world.
It also increased the GDP growth rate,
per-capita income, standard of living and industrial development.
These reforms helped the Indian economy
in purchasing power and exchanging rates.
The Banking systems and stock markets
helped in reducing the poverty and level and increased the economic growth.
The government employed a credit
rationing policy favoring certain priority sectors with loans at subsidized
The MRTP Act (Monopolies and Restricted
Trade Practices Act) managed in controlling the private investments and its
scale of operation.
The Capital Control Act regulated
securities market to determine the procedure of raising money according to
In Pre 1990s, The RBI conducted foreign
exchange transactions with no other intermediaries in the foreign market.
The reforms ensured the growth of the
Indian financial sector that will culminate in a strong and transparent system.
Before 1992, the government had the direct
control over the capital markets, after that period, SEBI (Securities Exchange
Board of India) took over the control of capital markets in India.
The Securities Exchange Board of India
enhanced new regulatory frameworks to strengthen the protection of investors.
In 1993, India began to use Global
Depository Receipts (GDRs). This opened the capital market to Foreign
Institutional Investors (FIIs) and Indian companies to
raise capital abroad by issue of equity.
Due to economic liberalization, the
Indian finance sector improved with the inflow of foreign direct investments,
the individual units in various sectors were expanded and diversified well.
The nationalization of banks improved
the systems and made the financial sector strong.
The changing market demands have again
brought India at the face of a challenge and the new role of finance in India
would be to accept this challenge and incorporate new policies again to meet
the changing market demands.
As a first step towards this goal, the
banking system should be up graded to bring in reductions in the cost of
1991 financial reforms:
Performance measured in terms of the
usual parameters of growth and stability clearly exceeded expectations.
The major sectors contributed to India’s
GDP Growth. The major sectors are Automobile Industry, Steel Industry, Real
Estate Industry, Tourism Industry, Energy Sector, Textile Industry, Airlines
Industry, Medical Industry, Biotechnology Industry, Electronics and Hardware
and the power industry.
The public sector financial
institutions, helped in direct financial assistance to newly established
companies to meet their capital requirement.
The financial institutions also helped
the existing companies to expand their capacities and modernization plans.
Due to these reforms, the employment is
increased to the greater extent.
The development of financial systems
helps to develop the various business units in all sectors which improve the
new employment opportunities.
The foreign exchange reserves were
raised after these reforms.
1991 financial reforms greatly helped
the economy to industrialize, contributes to high exports and rise in foreign
If this growth extends, India’s currency
become stronger in the future.
India’s national income has increased by
about eighteen times over a period of sixty three years.
Over a period of sixty three years,
India’s per-capita income has increased by four and half times.
In Indian economic growth, the labour force
shifted from primary sector to secondary and tertiary sector.
The proportion of working population in
primary sector will be low and in secondary and tertiary sector, the proportion
of working population will rise.
This happens because as economic development
takes place income increases and brings a large increase in demand for goods
and services produced by secondary and tertiary sector.
In India, agriculture plays a major role
in the overall development. It supports industries, contributes to foreign
trade, supplies food and fodder and has low capital output ratio, etc.
After Independence, a large number of
industries were industrialized with innovations.
In India, the industrial sector plays a
major role in modernizing agriculture, providing employment, contributing GDP,
raising incomes of the people, enhancing economic growth, etc.
The major components of service sector
like trade, transport and communication services, financial services,
educational and health services are growing at a rapid pace.
There is an expansion in Social overhead
capital mainly includes transport facilities, irrigation facilities, energy,
education system, health and medical facilities, since independence.
After independence, there has been an
impressive increase in the installed capacity.
To develop infrastructure various ideas
and projects were undertaken in various sectors of the country.
The railway networks is also getting
wide, the power has been made in India as more Dams are created, and thus
infrastructure of the country is growing both in rural and urban areas.
It develops the industries for the
transportation of goods in short period. The government issues infrastructure
bonds to attract investment in the infrastructure of the economy.
The financial systems in manufacturing
industry helps in increasing the production, contributes to exports and to
reduce the fiscal deficit of the nation.
To develop the economy, the prime
minister had launched the “Make in India” program to make India a manufacturing
hub and give global recognition to the Indian economy.
The government of India planned to
increase the contribution of manufacturing output in the upcoming years.
To increase the growth level of
manufacturing, many schemes, grants and rebates, low interest loans/funds were
The Retail industries in India are
growing fast due to several investors and it also contributed to GDP’s growth.
The retail sector also improved the
level of employment in India and high percentage of FDI was allowed.to achieve
competition and profitability.
market size of the Indian financial system:
The scheduled commercial banks were
performing better and the assets of the mutual fund industry were increased.
The life insurance industry recorded new
premium income and increased its growth rate by eighteen percent.
The market size of Indian Insurance
sectors projecting high with various policies which are expected to increase at
a faster rate over a period of next five years.
The market size of the Indian financial
system increasing the income levels and improving the life expectancy rates to
boost the growth of the economy.
Due to various financial reforms, Indian
companies are signing many private equity deals and increasing its substantial
India took general electric plans to
make a manufacturing hub for its global markets with the help of low
The securities and exchange board of
India (SEBI) plans to gradually introduce more commodity products and allow
more participants in the commodity derivatives market in India.
The Reserve Bank of India (RBI) helped
in expanding access to financial services in rural and semi-urban areas.
India serves as an example as the
service sector playing an important role in a country’s economic growth.
India’s IT-business process outsourcing
(BPO) industry revenue is expected to increase in the upcoming years.
For attracting more investments, the
union budget has allowed foreign investment in insurance and pension sectors.
In order to encourage and support to the
small entrepreneurs, the Government of India planned to improve more schemes.
The Government has also announced
several schemes to improve the extent of financial inclusion.
To provide loans to small and backward
business units, the Micro Unit Development and Refinance Agency (MUDRA) was
launched to fund and promote Microfinance Institutions (MFIs).
Government of India’s “Jan Dhan?
initiative for financial inclusion is great movement to economic growth.
Government of India aims to extend insurance,
pension and credit facilities to those excluded from these benefits under the
Pradhan Mantri Jan Dhan Yojana (PMJDY).
All this is the financial system efforts
that are initiated by Government of India to provide money to needy to develop
the economy of country.
The role of Indian financial system
improved the economic growth.
With various reforms, the economy is
grown in terms of GDP, employment opportunities and foreign exchange reserves.
The financial system should be flexible
in nature to attract more investors and to give more competition.
The attracted investments form as
savings which can be invested in infrastructure, industrialization, agriculture
and the services sector. This expands employment opportunities, and helps the
economy to become self-sufficient.