Financial development in the country of choice - Essay Example

A non-transparency in the transactions and interactions of the main participants of the financial market persisted (Mohan, 2004b). The financial environment in these years consequentially was featured by segmented and underdeveloped financial markets and banking in these years was essentially governed by fiscal priorities rather than optimal financial management and commercial motives. Although the financial sector was kept under administrative control with the objective of preventing mismatching alignment problems caused by market exploiting motives, by the end of the 1980s it was recognised that such attempts actually had led to declining transparencies, accountabilities and efficiency seeking motives and thus had defeated the initial purpose of achieving efficiency through effective co-ordination (Reddy, 2007).

Financial sector reforms became warranted with the dawning perception of the inability of the present system to achieve efficient allocation of resources (Mohan, 2006). In the remainder of this brief note, we shall briefly look at the development of the banking sector and the financial markets since the reforms. We shall mention the major reforms and briefly note their effects as observed over the course of the last 15 years or so in the degree of detail as allowed by the scope. The Reserve Bank of India (RBI) was nationalized as the central banking authority of the Indian economy in 19482.

The Indira Gandhi Government nationalised 14 banks in 1969 and six more in 1980. Sectors like agriculture, small-scale industry, retail trading were declared as priority sectors and the banks were directed to forward 40 % of their net credits to these sectors (Datt & Sundharam, 2005). The basic Banking structure since then has remained the same. There has been a significant increase in total deposits by 32.6 times for the time period 1971 to 1991 while notably this rise