Page 33 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes 2.9 Further Readings

Books RBI, Annual Reports, 2008-09
Business Today, September 21, 2008
Business Times, October 28, 2008
Business Standard, August 21, 2009

Business Standard, March 31, 2010
RBI, Annual Reports, 2004-05 and 2007-2008
RBI, Annual Reports, Op.cit.

Business Line, September 21, 2007



Caselet Financial Reforms and Industrial Sector in India

Sushil Khanna
ndian financial sector reforms have failed to achieve their goal of making the sector
more efficient, and there has been a hardening of interest rates 'instead of the cheaper
Icredit that was promised. These reforms have had disastrous effects on the industrial
sector leaving Indian firms vulnerable to the foreign competitor. While MNCs have been
allowed to bring in funds, institutional long-term finance for Indian firms has been curtailed.
The economic reforms in India, initiated in 1991, were based on the premise that macro-
economic crisis was a result of 'micro-economic' inefficiencies that distort the structure of
incentives to producers [Bhagawati and Srinivasan 1993]. After a short period of IMF style
'stabilisation', with the usual package of devaluation, temporary import compression and
fiscal and monetary contraction accompanied by a sharp increase in the interest rates in
the economy, the main focus of the reforms programme has been confined to what is
known as 'structural adjustment'.
The deregulation of the industrial and financial sectors has occupied the pride of place in
India's structural adjustment programme (SAP). The financial reforms programme set in
motion, follows the well known path of deregulating capital markets and banks, interest
rates, with drawing directed credit and subsidies, and encouraging stricter income
recognition norms and integrating the domestic financial markets with global financial
flows, in conformity with the 'Washington consensus'.
Similarly, the major objective of the 'Statement of Industrial Policy 1991', is the 'dismantling
of the regulatory system …(to facilitate) increasing competitiveness for the benefit of the
common man" [Gol 1991b]. This was sought to be achieved through wholesale abolition
of industrial licensing regime and major amendments to Monopolies and Restrictive
Trade Practices Act (MRTP). The amendments to the latter have specially been far reaching.
Thus, the new policy regime abolishes "pre-investment scrutiny of investment decisions
by the so-called MRTP companies…and for prior approval of central government for
expansion, establishment of new undertaking, mergers, amalgamation and takeover" of
other firms. Moreover, the list of industries reserved for public sector were reduced from
Contd...

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