The enhanced the corporate sector, by monitoring the

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.

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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 GDP.

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 encouraging
innovations. The financial system also enhanced the corporate sector, by
monitoring the management and improving the corporate control. 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 economic growth. 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 tertiary sectors.  The 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 markets. 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-1990:

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.

1990-present:

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.

Pre
1990s:

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 interest
rates. 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 instruments. 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.

After
1990s:

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
operation.

After
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 exchange reserves. 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 given. 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.

The
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.

India’s
economic growth:

Due
to various financial reforms, Indian companies are signing many private equity
deals and increasing its substantial growth. India took general electric
plans to make a manufacturing hub for its global markets with the help of low
manufacturing costs. 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.

Conclusion:

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.

 

 

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