The developments in theIndian Financial System from 1900-2017:· Indian financial system plays a majorrole in developing the Indian economy.
Indian financial system acts asintermediary agent between surplus and deficit state and facilitates the flowof funds among them.· Indian financial system supplies fundsto the deficit to improve various sectors of the economy by utilizing theresources without destabilization.· Indian financial reforms were startedwith the Narasimham committee recommendations, which increased the level offinancial system in India.
· These reforms improved the bankingsector, financial institutions, capital market, and money market which formedthe strong financial sector in India.· These reforms helped in forming newprivate sector banks with long term lending institutions to carryout bankingactivities and deregulation of interest rates, etc.· Many changes were adopted by thefinancial system to improve the economy of India. · Due to these changes, the banking sectorimproved and increased more in recent years.· The financial system creates bridgebetween the persons who have excess finance and the persons who require thefinance to improve the investment opportunity that leads to economic growth.
· The various changes in the financialsystem improved the country in industrializing which increased the level ofGDP.· The financial system improved the livingstandard of the people to acquire the luxury 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 theeconomic growth by giving funds to the most efficient investors, and byencouraging innovations.
· The financial system also enhanced thecorporate sector, by monitoring the management and improving the corporatecontrol.· The financial institutions lend funds tothe individuals, farmers, industrialists and entrepreneurs by collectingsavings from the people.· The Indian financial system includescommercial banks, insurance companies, non-banking financial companies,co-operatives, pension funds, mutual funds and other small financial entities.· Banks plays an important role indeveloping the economy, by improving the industry and trade activities.
It actsas a custodian of the wealth and resources of the country which improves theeconomic growth.· The financial system also improved thegross domestic savings and gross domestic product of the economy and projectedits growth in the upcoming years.· Most of the household savings in Indiaare invested in the bank deposits and other financial assets.· In 2015, India’s GDP growth increasedcompared to china due to the efficiency in financial system which proves thecountry as developing economy.· The government of India introduced manyreforms to regulate and enhance the economy by improving primary, secondary andtertiary sectors.· TheGovernment and Reserve Bank of India have taken various measures to facilitateeasy access to finance for large enterprises, Micro, Small and MediumEnterprises (MSMEs), farmers and also tertiary sectors.· The government of India helps indeveloping many reforms which allows foreign investors to access Indian bondmarkets.
· The financial market in India worksefficiently in providing the growth at a minimal cost.· In the pre-Independence India, thecolonial system brought a considerable change in the process of taxation whichresulted in economic breakdown.· In the pre-Independence India, Britishmade improvements in the country. The financial system established bankingsystem and free trade in the economy.· It also established a single currencysystem with exchange rates, standardization of weights and measures and also acapital market came into existence.Afterindependence-1990:· After independence, many reforms andpolicies were formulated to stabilize the economic growth of the country.
· These reforms were developed to increasethe quality and quantity of the export items, making the country self-sufficientand minimize the imports.· Green revolution movement was formedafter independence to develop the productivity of agricultural sector.· Developments were made in sectors suchas agriculture, village industries, mining, defense and so on. New roads werebuilt, dams and bridges were constructed, and electricity was spread to therural areas to improve the standard of living.1990-present:· In the year 1980s the government made afirst step towards liberalization plan. Due to this liberalization plan, Indiabecame market-based system.· In the liberalization plan, foreigndirect investments were formed, public monopolies were abolished and servicesectors were developed.
· In this reforming phase of India, theeconomy faced tremendous growth and became the second fastest growing economyin the world.· It also increased the GDP growth rate,per-capita income, standard of living and industrial development.· These reforms helped the Indian economyin purchasing power and exchanging rates.Pre1990s:· The Banking systems and stock marketshelped in reducing the poverty and level and increased the economic growth.· The government employed a creditrationing policy favoring certain priority sectors with loans at subsidizedinterest rates.
· The MRTP Act (Monopolies and RestrictedTrade Practices Act) managed in controlling the private investments and itsscale of operation.· The Capital Control Act regulatedsecurities market to determine the procedure of raising money according toinstruments.· In Pre 1990s, The RBI conducted foreignexchange transactions with no other intermediaries in the foreign market.· The reforms ensured the growth of theIndian financial sector that will culminate in a strong and transparent system.
After1990s:· Before 1992, the government had the directcontrol over the capital markets, after that period, SEBI (Securities ExchangeBoard of India) took over the control of capital markets in India.· The Securities Exchange Board of Indiaenhanced new regulatory frameworks to strengthen the protection of investors.· In 1993, India began to use GlobalDepository Receipts (GDRs). This opened the capital market to ForeignInstitutional Investors (FIIs) and Indian companies toraise capital abroad by issue of equity.
· Due to economic liberalization, theIndian 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 improvedthe systems and made the financial sector strong.· The changing market demands have againbrought India at the face of a challenge and the new role of finance in Indiawould be to accept this challenge and incorporate new policies again to meetthe changing market demands.· As a first step towards this goal, thebanking system should be up graded to bring in reductions in the cost ofoperation.
After1991 financial reforms:· Performance measured in terms of theusual parameters of growth and stability clearly exceeded expectations.· The major sectors contributed to India’sGDP Growth. The major sectors are Automobile Industry, Steel Industry, RealEstate Industry, Tourism Industry, Energy Sector, Textile Industry, AirlinesIndustry, Medical Industry, Biotechnology Industry, Electronics and Hardwareand the power industry.· The public sector financialinstitutions, helped in direct financial assistance to newly establishedcompanies to meet their capital requirement.· The financial institutions also helpedthe existing companies to expand their capacities and modernization plans.· Due to these reforms, the employment isincreased to the greater extent.· The development of financial systemshelps to develop the various business units in all sectors which improve thenew employment opportunities.· The foreign exchange reserves wereraised after these reforms.
· 1991 financial reforms greatly helpedthe economy to industrialize, contributes to high exports and rise in foreignexchange reserves.· If this growth extends, India’s currencybecome stronger in the future.· India’s national income has increased byabout 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 forceshifted from primary sector to secondary and tertiary sector.· The proportion of working population inprimary sector will be low and in secondary and tertiary sector, the proportionof working population will rise.· This happens because as economic developmenttakes place income increases and brings a large increase in demand for goodsand services produced by secondary and tertiary sector.
· In India, agriculture plays a major rolein the overall development. It supports industries, contributes to foreigntrade, supplies food and fodder and has low capital output ratio, etc.· After Independence, a large number ofindustries were industrialized with innovations.· In India, the industrial sector plays amajor role in modernizing agriculture, providing employment, contributing GDP,raising incomes of the people, enhancing economic growth, etc.· The major components of service sectorlike trade, transport and communication services, financial services,educational and health services are growing at a rapid pace.· There is an expansion in Social overheadcapital mainly includes transport facilities, irrigation facilities, energy,education system, health and medical facilities, since independence.· After independence, there has been animpressive increase in the installed capacity.
· To develop infrastructure various ideasand projects were undertaken in various sectors of the country.· The railway networks is also gettingwide, the power has been made in India as more Dams are created, and thusinfrastructure of the country is growing both in rural and urban areas. · It develops the industries for thetransportation of goods in short period.
The government issues infrastructurebonds to attract investment in the infrastructure of the economy.· The financial systems in manufacturingindustry helps in increasing the production, contributes to exports and toreduce the fiscal deficit of the nation.· To develop the economy, the primeminister had launched the “Make in India” program to make India a manufacturinghub and give global recognition to the Indian economy.· The government of India planned toincrease the contribution of manufacturing output in the upcoming years.
· To increase the growth level ofmanufacturing, many schemes, grants and rebates, low interest loans/funds weregiven.· The Retail industries in India aregrowing fast due to several investors and it also contributed to GDP’s growth.· The retail sector also improved thelevel of employment in India and high percentage of FDI was allowed.to achievecompetition and profitability.Themarket size of the Indian financial system:· The scheduled commercial banks wereperforming better and the assets of the mutual fund industry were increased.
· The life insurance industry recorded newpremium income and increased its growth rate by eighteen percent.· The market size of Indian Insurancesectors projecting high with various policies which are expected to increase ata faster rate over a period of next five years.· The market size of the Indian financialsystem increasing the income levels and improving the life expectancy rates toboost the growth of the economy.India’seconomic growth:· Due to various financial reforms, Indiancompanies are signing many private equity deals and increasing its substantialgrowth.
· India took general electric plans tomake a manufacturing hub for its global markets with the help of lowmanufacturing costs.· The securities and exchange board ofIndia (SEBI) plans to gradually introduce more commodity products and allowmore participants in the commodity derivatives market in India.· The Reserve Bank of India (RBI) helpedin expanding access to financial services in rural and semi-urban areas.· India serves as an example as theservice 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, theunion budget has allowed foreign investment in insurance and pension sectors.· In order to encourage and support to thesmall entrepreneurs, the Government of India planned to improve more schemes.
· The Government has also announcedseveral schemes to improve the extent of financial inclusion.· To provide loans to small and backwardbusiness units, the Micro Unit Development and Refinance Agency (MUDRA) waslaunched 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 thePradhan Mantri Jan Dhan Yojana (PMJDY).· All this is the financial system effortsthat are initiated by Government of India to provide money to needy to developthe economy of country.Conclusion:· The role of Indian financial systemimproved the economic growth.· With various reforms, the economy isgrown in terms of GDP, employment opportunities and foreign exchange reserves.· The financial system should be flexiblein nature to attract more investors and to give more competition.
· The attracted investments form assavings which can be invested in infrastructure, industrialization, agricultureand the services sector. This expands employment opportunities, and helps theeconomy to become self-sufficient.