Type: Process Essays
Sample donated: Dustin James
Last updated: December 29, 2019
DIGITAL ASSIGNMENT-1NAME: SWATHI.VREG NO: 16BBA0009 EVOLUTIONOF INDIAN FINANCIAL SYSTEM:First threebanks merged in 1921 to form the imperial bank of India and after India’sindependence the bank became the state bank of India. There wasestablishment of banks in between 1906-1911 inspired by swadeshi movement.
Andthis swadeshi movement attracted business mans and political people to foundbanks for the Indians. After that number of banks was established and then theyhave fully running at present also such as corporation bank, Indian bank, bankof Baroda, Canada bank and central bank of India. Evolutionof Indian financial system was characterised by: There was of absence of organisedcapital market. There was a rare case of public issuesof capital for expansion and modernisation.
And there are a few financial institutionsand players in the market. The companies have strict conditions forgetting loan to start their own business. Indian financialsystem has faced many stages to attain universal banking system in economy. EvolutionIndian financial system development is divided into three phases. The first phase on pre-1951 period. The second phase is from 1951 to 1990period and The third phase on Post-1990 period. FIRSTPHASE ON PRE-1951 PERIOD:There was traditionaleconomy of financial organisation before 1951 of Indian financial system asformulated by R.L.
Bennett. There is principals of pre-1951 financial systemwere described by L.C. Gupta. The principal of pre-independence industrialfinancing organization have certain characters of industrial entrepreneurship.
Asa result from this, there was a many restriction for industries to get outsidesaving. Such a financial system was clearly shown that there was incapable tosustaining a high rate of industrial growth, particularly growth of new and innovating/creativebusiness. Control of money lenders in that period No regulatory bodies in country No laws –total private sectors Hardly any industrialization in theeconomy Banks- traditional lenders for trade andthat too short term Main concentration on traditionalagricultural and related activities Absence of intermediatary institution inlong term financing of industrial activity SECONDPHASE FROM 1951-1990 During period of1951-1990 more supply of finance and credit for the entrepreneurs and industryto strengthen economic growth. In this period Indian financial system have a certainresponsibility to have planned economic development in economy. There was a broadeconomic policy and social aims of the state to secure economic growth withrules and regulations of the Indian constitution, under the principles of Statepolicies, the scheme of planned economic development was initiated in 1951. The second phasewas country has planned economy. In the period of planned economy developmentthe economy have both public and private sector as mixed economy.
And theimplication of financial system is laid down by government’s economic policy.Planning has distribution of resources by the financial system with new fiveyear plans. In this planning process government have implemented and aimedcertain patterns for distribution of finance and credits to develop the growthof the economy. The plannedeconomic development is divided into four groups: Public ownership of financialinstitutions Fortification of the institutionalstructure Protection of investors Participation of financial institutionsin corporate management 1951-1990 Moneylenders ruled till 1951. No banks arerunning properly at that time. Industries depended on their own money. 1951onwards the five year plan was commenced. Ø Public ownership of financialinstitutions:Evolution of financial system of India has aprogressive transfer of private ownership to public control.
The control ofpublic has certain measures of nationalization for creation of new institutionwith the control of public sector. Nationalization:· RBI-1948· SBI-1956 take-over of imperial bank ofIndia· LIC-1956 mergers of over 245 lifeinsurance companies· Banks-1969-14 major banks under thecontrol of government of India· Banks- 1980-6 more banks · Insurances-1972 GIC (General insurancecompanies) Ø DEVELOPMENTAL BANKS ALSO FORMED INTHIS PERIOD:· Industrial Finance Corporation of India(IFCI) in1948 was the introduced in this period for the development of bankingin India. The full power for these institutions was given in the year of 1951.This institution gives medium and the long term credit for the industrial enterprises.· National industrial development (NIDC) wasstarted in 1954 to provide finance and credit for entrepreneurship andfinancing agency for modern cotton and jute industry.
· In 1955 there was Industrial Credit and InvestmentCorporation of India (ICICI) for development of economy.· Refinance Corporation of Industry wasstarted in 1958 provide finance to the banks in term of loan granted by them tosmall and medium enterprises.· Industrial Developmental Bank of Indiawas took place in India in 1964THRIDPHASE ON POST 1990s:Inthis phase new economic policy are formulated. The main features in economicreforms in this phase are, Privatization Globalization Liberalization Privatization:Privatizationmeans more number of industries is setup by private sector and certain publicsector industries are sold to private sector is called privatization ineconomic reforms. · Sales of public sector securities toprivate sectors.
· Disinvestment of public sector and lesscontrol of public sectors.· Number of industries of public sectorswas reduced in the economy and there was increase in industries in privatesector.· There was a maximum investment inprivate. Globalization:Globalizationmeans linking with the world. Here globalization means Indian economy shouldlink with whole world such as free trade policy and capital and free movement ofperson across the borders.· Increase in Foreign investments· A tariff was reduced for imports andexports goods and commodities.· Long term during policy was introducedin this phase. Liberalization:Liberalizationmeans free in form to direct and physical controls imposed by government.
Before post 90’sthere was restriction for big investments, licensing policy, foreign exchangecontrol etc., under government side. After the liberalization there was controlon corruptions, political interference, and etc.· Licence system was introduced in thisperiod by liberal policy since 1991. There are certain industry must have theirlicence before setting up their industry such industries are liquor, cigarette,defence equipments, dangerous chemical, drug, industrial explosive.
· The industry which has assets more than100 crore they are need not get approval from government.· No barriers for import technology and therewas abolition of the limit of production expansion and investment for smallscale industry. DEVELOPMENTOF INDIAN FINANCIAL SYSTEM 1900-2017: In 1990’s Indian economy has undergoingeconomic reforms which includes financial reforms. And Indian banking system has becomemore market oriented in 1991. Number of stock exchange was increasedfrom 9 to 22 in years 1981-1991 and there was a rapid expansion of stockexchange activities.
The number of listed companies isincreased from 2265 to 6229 in years 1980-1991 and market capitalization from 68billion in 1980 to 1103 billion in 1991and 11926 billion in 2000. In 1991 liberalization have been takenon the cash reserve ratio and statutory liquidity ratio and before 1991 beforeCRR is more than 25% and SLR IS 40% and at 2006-7 the CRR came down to 6% andSLR is 25% and at present CRR is 4% and SLR is 19.5 %.
The number of foreign banks and privatebanks operation was increased from 21 and 23 in 1991 to 33 and 30 in 2004. RECENTDEVELOPMENT IN INDIAN FINANCIAL SYSTEM, Withdrawal of legal tender status for?500 and ?1000 notes.· To reduce the corruption and black moneycirculation in the economy the government decided to stop the circulation of500 and 1000 notes into the economy. And instead of those notes the financialsystem introduced new currency for legal transaction. Passages of goods and service tax bill.
· The government passed the tax on goodsand service on august 2016. The special additional duty on custom GST wouldlead to a uniform consumption –based tax structure across the all goods andservice. Thrust towards digitisation ongovernment payments.
· Afterdemonetisation in India, there is change toward payment every payment is madein digital/electronic way. To make digital India. PERIODS POLICY MEASURES FOR DEVELOPMENT 1990-1991 1. New import and export policy was formulated 2.
Services exports were encouraged 3. Replenishment rates were modified to encourage higher value added product. 1992-1993 1. EXIM policy for five year 1992-1997 was implemented 2. Since 1992 imports were regulated through a limited negative list 1994-1995 1. Under the duty exemption scheme and the export promotion of capital goods scheme third party export were given benefits 1995-1996 1. Quantitative restrictions were phase out in the form of licensing and other discretionary controls 2.
Control on imports were liberalised with only small list of items in negative list 1997-1998 1. EXIM policy 1997-2002 constituted 1998-1999 1. Exports under all exports promotion schemes were exempted from special additional duty 2. Simplification of bond-furnishing producers for exporter 3. Tax holiday for EOU/EPZ for 10 years 1999-2000 1. Free trade zone replaced export processing zone 2. green card for exporters for exporting 50% for their production 3. duty free imports of consumables up to certain limits for gems and jewellery, handicrafts and leather sector 2001-2002 1.
quantitative restrictions removed from 714 tariff fines 2. setting up special economic zone 2002-2003 1. agricultural exports promoted 2008-2009 1.
continued on special economic zone 2. export duty on iron ore fines were eliminated 2010-2011 1. 27 markets added under the focus market scheme(FMS) with incentive of duty credit scrip at 3% of export 2.
Zero duty export promotion capital goods scheme and status holder incentive scrip scheme are introduced