Module VI - ECONOMIC POLICY

Assignment submitted to Assit prof. Roopa Balavenu

Prepared by,Romeo.B Sankarshan Pradeep

KumarVijay. N Vaishnavi Navneet KaurNagesh Narashima. L Nithyananda

Nachiketh Mohammed toufeeqSanthosh Ja

Submitted by MBA 2nd sem B-sec on 10th may, 2013Submitted by MBA 2nd sem B-sec on 10th may, 2013

CONTENT• Module VI • Economic policies: Privatisation-Problems and

prospects.• Fiscal Policy: Objectives, Instruments, Union

Budget, Reforms –Raja Chelliah Committee Recommendations, Taxes, Role of Government.

• Monetary Policy: Money, Measures of money supply, Monetary system in India, Monetary policy- Tools for credit control. Structure of the Banking system, RBI and its functions, Banking structure reforms – Narasimham committee recommendations.

ECONOMIC POLICIES

• Governments generally accept the view that their key role is to create appropriate public policies that promote economic growth. Experience has proved that healthy economic growth is affected by many factors, thereby requiring continuing efforts by government policies that encourage investment, foster technology development, provide key services and create a capable workforce through education and training each year dozens of laws are proposed by legislature to improve the nation’s business climate and promote economic growth.

Objectives of economic policy:• To achieve faster economic growth.• To reduce inequalities of economic and wealth.• To achieve full employment.• Price stability.• Balance of payments equilibrium.

PRIVITISATION

• According to the World Bank, privatization “is the transfer of transfer of ownership of state-owned enterprises (SOEs) to the private sector by sale (full or partial) of going concerns or by sale of assets following the liquidation”.

Prospects of privatization

• To reduce the burden on government• To strengthen competition and efficiency • To fund infrastructure growth • To improve public finances • Accountability to shareholders • To reduce unnecessary interference • More disciplined labour forces

Problems of privatization

• Ownership to a privileged few• Labourers would be at the mercy of the owner• Price and Ignorance factors• Lack of social responsibility

FISCAL POLICY

• Fiscal policy is the government’s schedule for spending and tax implementation to influence the economy for the year. The fiscal policy is concerned with the raising of government revenue and incurring of government expenditure. To generate revenue and to incur expenditure, the government frames a policy called budgetary policy or fiscal policy.

OBJECTIVES OF FISCAL POLICY

• Development by effective Mobilization of Resources.

• Efficient allocation of Financial Resources.

• Reduction in inequalities of Income and Wealth.

• Price Stability and Control of Inflation• Employment Generation

INSTRUMENTS OF FISCAL POLICY

• Taxation.

• Public Borrowing.

• Forced savings or Deficit Financing.

• Public Expenditure.

Introduction

Union budget is a comprehensive display of the government’s finances. It is the most significant economic and financial event in India.

The finance minister puts down a report that contains Government of India’s revenue and expenditure for one fiscal year. The fiscal year runs from April 01 to March 31.

The union budget is preceded by an economic survey which outlines the broad direction of the budget and the economic performance of the country.

Objectives of Union Budget

Allocation of Resources

Re-Distributive Activities

Economic Stability

Management of Public Enterprises

Problems of Union Budget in India

  Gap between Needs and Resources of State

Government

Question of State Autonomy

Reduced Importance of the Finance Commission

Failure to Tackle the Problem of Regional Imbalances to Any Satisfactory Extent

Highlights: Union Budget 2013-14

The Union Budget for 2013-14 aims at higher growth rate leading to inclusive and sustainable development as 'mool mantra'. Finance Minister P Chidambaram makes three promises: to women, the youth and the poor.

Nirbhaya Fund to empower women and to keep them safe and secure, proposal to set up India's first Women's Bank as a public sector bank, Rs 1,000 crore for skill development of ten lakh youth to enhance their employability and productivity.

Education gets Rs 65,867 crore, an increase of 17 per cent over RE for 2012-13.

Substantial rise in allocation to the social sector. Allocation for Rural Development Ministry raised by 46 per cent to Rs 80,194 crore.

  Defence has been allocated Rs 2, 03,672 crore.

Drinking water and sanitation will receive Rs 15,260 crore. Rs 1,400 crore is being provided for setting up water purification plants to cover arsenic and fluoride affected rural areas.

Tobacco products, SUVs and Mobile Phones to cost more.

Relief of Rs 2,000 for the tax payers in the first bracket of 2 to 5 lakhs.

A surcharge of 10 per cent on persons (other than companies) whose taxable income exceeds Rs 1 crore has been levied.

  A grant of Rs 100 crore each has been made to 4

institutions of excellence including Aligarh Muslim University, Banaras Hindu University, Tata Institute of Social Sciences, Guwahati and Indian National Trust for Art and Cultural Heritage (INTACH).

Rs 14,000 crore will be provided to public sector banks for capital infusion in 2013-14.

Technology Up gradation Fund Scheme (TUFS) for textile to continue in 12th Plan with an investment target of Rs 1, 51,000 crore.

Benefits or preferences enjoyed by MSME to continue up to three years after they grow out of this category.

 

First home loan from a bank or housing finance corporation up to Rs 25 lakh entitled to additional deduction of interest up to Rs 1 lakh.

The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) will receive Rs 14,873 crore as against RE of Rs 7,383 crore in the current year.

April 10, 2023 17

  TAXATION

Meaning and definition of Taxation:

According to Taylor, “Taxes are the compulsory payment to Government without expectation of direct benefit to the tax payer”. 

In other words, it is a liability imposed upon the assesse who may be individuals, groups of individuals and other legal entities. A charge imposed by a Government on a service, product, or activity in order to raise revenue. Tax can be levied on business or personal income.

Types of Taxation

Direct TaxIndirect

Tax

• Personal Tax• Net Wealth Tax• Capital Tax

• Value Added Tax• Real estate Tax• Stamp Duty• Customs Duties

April 10, 2023 19

OBJECTIVES OF TAXATION

• Raising Public Revenue• Regulation and Control

• Reduction of Inequalities in Income and Wealth• Promoting Capital Formation

• Political Objectives• Increase in National Income

• Restrict Unnecessary Consumption

 Role of Government in Taxation

• April 10, 2023 • 20

• Providing a Stable set of Institutions, Laws and Rules

• Promoting Effective and Workable competition

• Correcting for Externalities

• Providing public Goods

 • Creating an Environment that Fosters

Economic Stability and Growth

• Adjusting for Undesirable Market Results

Raja Jesudoss Chellaiah Committee on Tax Reforms.

In August 1991, the govt of India constituted a tax reforms committee headed by Dr.Raja Jesudoss Chelliah to examine the structure of direct and indirect tax system. The committee submitted its interim report in February 1992. In this report the committee stressed the importance of lower rates of taxation. Reduction in general level of tariff.

The finance minister implemented some of the recommendations in 1993-94 budget. The committee has made for reaching recommendations for reforms in all the three major sources of central revenue, income tax, excise and customs.

Objectives of the Raja Chelliah Committee:

To find ways of increasing the share of direct taxes in the total tax revenue.

To nationalize direct tax structure through removal of anomalies.

To identify new areas of taxation.

To rationalize custom tariff & excise duties.

To reduce the level of tariff rates to make them internationally competitive.

To increase the network of MODVAT and other schemes. 

Recommendation of Raja Chelliah Committee:

Lowering rate and narrowing spread: To neutralize the fall in revenue due to lowering of the rates of taxation it will be necessary to withdraw some of the tax incentives.Avoiding double taxation: At present there is double taxation of partnership firms. The partners pay personal income tax & as a partnership firm they pay corporate tax. This has to be avoided to lift the industrial sector.Reducing rate differences between domestic and foreign companies: To encourage the flow of foreign capital it is also necessary to reduce tax rate to foreign companies.The tax rates on domestic and foreign companies to 7.5% profit.Rationalizing capital gains tax: The system fails to take into account effects of price inflation over the period during which taxable gain has occurred. Rationalizing wealth tax: For levying wealth tax it is necessary to bring into focus the distinction between productive and unproductive wealth. Tariff reduction: Reduction in the general level of tariffs, a reduction in the dispersion of the tariff rates, a rationalization of the system with abolition of the numerous end-use exemptions and concessions.

MONETARY POLICY…• Monetary policy refers to the policy adopted by the monetary

authority of a country with respect to the supply of money, the rate of interest and other matters. In other words, it is the process by which the government, central bank or monetary authority of a country controls (i) the supply of money, (ii) the availability of money, and (iii) the cost of money or the rate of interest in order to attain a set of objectives oriented towards the growth and stability of the economy.

OBJECTIVES…• The objectives of a monetary policy in India are similar to the

objectives of its five year plans.Indian planning aims at growth, stability and social justice. After the Keynesian revolution in economics, many people accepted significance of monetary policy in attaining following objectives.

• Rapid Economic Growth :- The monetary policy can influence economic growth by controlling real interest rate and its resultant impact on the investment. If the RBI opts for a cheap or easy credit policy by reducing interest rates, the investment level in the economy can be encouraged. This increased investment can speed up economic growth. Faster economic growth is possible if the monetary policy succeeds in maintaining income and price stability.

Contd…• Price Stability:- All the economics suffer from inflation and

deflation. Both inflation are harmful to the economy. Thus, the monetary policy having an objective of price stability tries to keep the value of money stable. It helps in reducing the income and wealth inequalities.

• Exchange Rate Stability:- Exchange rate is the price of a home currency expressed in terms of any foreign currency. If this exchange rate is very volatile leading to frequent ups and downs in the exchange rate, the international community might lose confidence in our economy. The monetary policy aims at maintaining the relative stability in the exchange rate.

Contd…• Balance of Payments (BOP) Equilibrium:- Many

developing countries like India suffers from the Disequilibrium in the BOP. RBI through its monetary policy tries to maintain equilibrium in the balance of payments.

• Full Employment :- It refers to absence of involuntary unemployment. In simple words 'Full Employment' stands for a situation in which everybody who wants jobs get jobs. However it does not mean that there is a Zero unemployment. If the monetary policy is expansionary then credit supply can be encouraged. It could help in creating more jobs in different sector of the economy.

Contd…• Neutrality of Money:- Many economists have always considered

money as a passive factor. According to them, money should play only a role of medium of exchange and not more than that. Therefore, the monetary policy should regulate the supply of money. The change in money supply creates monetary disequilibrium. Thus monetary policy has to regulate the supply of money and neutralize the effect of money expansion. However this objective of a monetary policy is always criticized on the ground that if money supply is kept constant then it would be difficult to attain price stability.

• Equal Income Distribution:- monetary policy can make special provisions for the neglect supply such as agriculture, small-scale industries, village industries, etc. and provide them with cheaper credit for longer term. This can prove fruitful for these sectors to come up. Thus in recent period, monetary policy can help in reducing economic inequalities among different sections of society.

Functions…• Strategic goals.• Annual performance objectives.• Performance metrics.• Operational processes and resources required to meet goals.• Validation and verification of measured values.• A most suitable interest structure.• A correct balance between the demand and supply of money.• The establishment, functioning and growth of financial

institutions of the economy.• Proper management of public debts.

TOOLS OF CREDIT CONTROL

• These tools can be divided into two categories—quantitative and qualitative credit control. There are three main methods of quantitative credit control—bank rate policy, open market operation and changes in statutory reserve requirements. The qualitative methods of credit control are also known as selective credit control method. These include rationing, direct action, changes in margin requirements, moral suasion, etc. the quantitative control measures are also known as traditional credit control measures.

Traditional credit control measures

• Bank rate policy: Bank rate is defined as the official minimum rate at which the central bank rediscounts approved bills of exchange. When the central bank raises the bank rate, the obtaining fund from the central bank becomes costlier for commercial banks. The reverse happens when the bank rate is lowered during the period of depression.

• Open-market operation: It refer to the purchase and sale of government securities and other approved securities by the central bank. An open-market sale decreases the money supply and a purchase increases the money supply.

Cont…• Cash reverse requirements:- : It refers to that portion of

banks’ total cash reserve which they are statutory required to hold with the RBI. The remaining portion of the total cash reserves of the banks refers to excess reserves which banks keep them-selves to facilitate their normal functioning. An increase in the legal cash reserves ratio decreases the banks’ and their optimum credit creating capacity.

• Statutory liquidity ratio: The main role of the statutory liquidity ratio is to allocate bank credit between government and commercial sectors. This instrument is also used to control the supply of money.

Selective credit control measures

The selective credit control measures are very popular in developing

countries like India. These controls are exercised through official

regulations. Section 21 of Banking Regulation Act 1949 empowers

the RBI to issue directives to banks with regard to advances. These

directives may be with regard to;-• The purpose for which banks may or may not give advances.• The margins to be maintained with regard to secured advances.• The maximum amount of advance to any particular borrower.• The rate of interest and the other terms and conditions for granting

advances.• The maximum amount up to which guarantee may be given by the

bank.

MEASURE OF MONEY SUPPLY

Narrow money (M1) and Broad money (M3)This concept is known as narrow money (M1) because it consists of currency plus bank money held by people. There are other liquid or monetary resources with the public. Hence, there is another concept of money supply known as broad money- this is referred as M3 by RBI.•we regard “money”, “cash” and “liquidity” as one and the same. According to Redcliffe Committee, “Spending is not limited by the amount of money in existence but it is related to the amount of money people think they can get hold of”. •In near money assets, we include fixed deposits or time deposits with the banking system. Time deposits or fixed deposits contribute to the liquidity of the general public in three ways:-

 THE INDIAN MONETARY POLICY

Indian policy has focused on accelerating economic development, while maintaining price and financial stability. RBI has been adopting a monetary policy that aims at controlled monetary expansion whose twin objectives are,

(a) To ensure that there is no paucity of funds for all legitimate economic activities and

(b) The availability of funds is not excessive to cause inflation. This implies that while there is expansion in the supply of money, there is restraint on the secondary expansion of credit.

With regard to the expansion of money supply, it has to expand it to the extent that it more than matches the growth in national income. This is because of two factors:

(c) With the growth in incomes, the demand for money to be set aside as savings tends to go up, and

(d) with the sizeable growth in the economy, there is a gradual reduction in non-monetized sector that augments money supply.

1) The depositors can borrow from the banks against time or fixed deposits in the case of emergency.

2) They can encash their fixed deposits even before their maturity period – by sacrificing part of the interest; and

3) They are allowed by some banks to withdraw, from out of their fixed deposits; i.e., use fixed deposits as a form of savings deposits.

• It was after Redcliffe Committee Report that RBI started using two concepts of money supply – the conventional money supply (M1) an d broad money supply (M3) which includes, besides conventional money, fixed deposits with banks.

M2 and M4 are irrelevant M2 and M4 which are the money stock measures prepared by

RBI. They include post office savings accounts (M2) as well as all the other deposits with the post office (M4). These savings and other deposits with the postal system should also part of the aggregate monetary resources of the people in the country, since the people consider themselves as liquid resources.

Broad money (M3) The basic distinction between narrow money (M1) and broad

money (M3) is the treatment of time deposits with banks. • Narrow money excludes time deposits of the public with the

banking system and , broad money includes time deposits of the public with the banking system, not as cash proper but as part of the total monetary resources of the public.

• Monetary Aggregates in India Actually, the RBI now calculates four concepts of

money supply in India. These are known as Money stock measures or measures of monetary aggregates. The four concepts of money supply are:-

o M1 = Currency with the public, i.e., coins and currency notes + demand deposits of the public; also known as narrow money.

o M2 = M1 + Post office savings depositso M3 = M1 + Time deposits of the public with banks: M3

is known as broad money.o M4 = M3 + Total post office deposits* * People maintain fixed deposits of various maturities

with post offices, apart from savings deposits.

Money stock measures (as on March 31,2012):

amt in crores.Sl no

1990-1991 2010-2011

2011-2012

1 Money supply with the people(M1) 92,890 16,35,569 17,298.7

2 Post office saving bank deposits* 4,210 5,041 50.4

3 M2(M1+Serial No.2) 97,100 16,40,610 17,349.1

4 Time deposits with banks 1,72,940 48,63,969 56,142.0

5 M3(M1+ Serial No.4) 2,65,830 64,99,548 73,440.7

6 Total post office deposits 14,680 25,969 259.7

7 M4(M3+ Serial No.6) 2,80,510 65,25,517 73,700.4

This above given table shows;- The calculation of the four concepts of money supply with the

public, viz., M1, M2, M3 and M4. Comparison of these figures for three years, viz., 1990-91,

2010-2011 and 2011-2012. The broad money (M3) has been rising much faster than

narrow money (M1). This is because people are keeping bank money increasingly in the form of time deposits.

.MONETARY POLICY IN

OPERATION• Monetary policy sometimes works under conflicting

goals,ex-the desire to avoid inflation versus the desire to boost output and employment.ex-central bank can fix the reserves or it can set the interest rates on any one class of debt instruments.it can exert influence on these economic process.

• USE OF MONEY AS AN ‘INTERMEDIATE’ TARGET

• The central bank can decide on the amount of’money supply’ in a given year, but cannot directly set the amount in the financial system;besides,it cant directly control the volume of bank credit.

E-MONEY AND FALLING DEMAND FOR CENTRAL BANK

MONEY• Central bank faces a new threat .long run factors,technological ones in

particular,reduce the effectiveness of monetary policy.these new developments threaten to reduce the demand for central bank money to a level where the central banks leverage over the monetary system.electronics substitutes for cash become more widely available.

• IMPLICATIONS OF A DECLINING DEMAND FOR BASE MONEY

• THE declining demand for base money causes major problems for central bankers.first as base money less significant,it will gradually lose its effeciveness as a channel through which the central bank can influence the broader monetary system.

• Secondly the decline in the demand for base money would make price and interest rates more vulnerable to external shocks and in particular to change in the technological and other factors that influence the demand for currency.

GLOBALISATION AND THE MONETARY POLICY• The process of globalisation and liberalisation has necessitated

widening of the mandate of central banks.for their policies to be effective ,monetary authorities are required to modify the way in which they conduct monetary policies.central banks in emerging markets also face similar issues.

• MONETARY POLICY AND INFLATION

• One of the most significant developments in the theory and practice of monetary policy in he recent years has been inflation targeting.The rationable for inflation targeting emerges as a joint sequence as the joint consequence of two tools of monetary policy.it can be either open market operation or the interest rate the bank charges on advances.in case of short run there is nothing monetary policy can do about either output or employement.

MONETARY POLICY IN INDIA

• BANK RATEThe bank rate is the rate at which bank borrow from

RBI(reserve bank of india).it is also defined as the rate of which reserve bank gives loans to banks by discounting bills.any revision in the bank rate by the RBI is a signal to banks to banks to revise deposit rates as well as prime lending rate.

.REPO RATEThe repo rate is the rate at which RBI borrows from the

banks.this is also the floor rate at which overnight deals are struck.besides lowering the cost of funds ,a lower repo rate will see the emergency of a short term yeild curve.

CRR AND SLR

. Crr is the cash revenue ratio which is the percentage of net funds that commercial banks have to park fortnightly with the RBI to do business.lowering of crr means means that more money comes into circulation.In addition to the crr requirement banks are supposed o maintain a certain percent of net deposits in the govement seurities and similar instruments specified.this is known as statutory liquidity ratio(slr) which is 25% present.

MONETARY POLICY OPERATIONS

• LIQUIDITY MANAGEMENT:

• The reserve bank modulates market liquidity through a mix of repo operations.as a capital flows persisted,the reserve bank portfolio necessited a switch from out right OMO TO REPO operations.the monetary policy operations has emerged as a key instrument of liquidity management.

• INTEREST RATE POLICY• The reserve bank continued to take policy

initiatives to impart a greater degree of flexibility to the interest rate structure.it also follow credit policy.

Structure of Indian banking system

Presenting by, Nagesha M R

Scheduled Banks

The scheduled banks are those which are

entered in the second scheduled of RBI Act,

1934. Such banks are those which have a

paid-up capital and reserve of an aggregate

value of not less than Rs5 lakhs and which

satisfy RBI that their affairs are carried out

in the interest of their depositors.

commercial banks• Commercial banks are based on profit.

• mobilize the savings in urban areas and make them available to

large and small industrial and trading units mainly for working

capital requirements.

a) Public sector Banks:

b) Private sector Banks:

cooperative bankscooperative banks are based on cooperative principle.

Non scheduled Banks

Non-scheduled banks are those which have

not been included in the second schedule of

RBI Act, 1934.

BANKING SECTOR REFORMS

No Bar To Set Up New Banks In Private Sector

No difference in treatment between public sector and private sector banks

Local banks should be confined to specific region and rural banks should

cater to the needs of rural areas

Banks should be authorised to recover bad debts through special tribunals

Public sector banks with profitable operations should be allowed to operate

in capital markets

Valuation of assets should be made by a panel consisting of atleast 2

independent auditors

Setting up of Asset Reconstruction Fund(ARF) and provided with special

powers of recovery

Abolishment of branch licensing

opening /closing of branches should be left to the individual judgement of

banks

Setting up of a board for financial supervision

Need for Speedy computerization of banking sector

Ensure transparency in maintaining balance sheet

o Internal organisation of banks

o Permitting of joint ventures between foreign banks and Indian banks

o Adoption of liberal policies by RBI towards foreign banks

Reserve Bank of

India & its functions 

BY Pradeep Kumar

Reserve Bank of India (RBI) 

• RBI was inaugurated in April 1935 with a share capital of Rs. 5 crore

• Reserve Bank of India Act of 1934 provided for the appointment by the Central Government.

• Consists Central Board of Directors of 20 members.

• Besides the Central Board, there are four local boards with head quarters at Mumbai, Kolkata, Chennai and New Delhi.

• RBI was nationalized in 1949.

Functions of Reserve Bank of

India• Bank of Issue• Banker to Government• Bankers' Bank and Lender of the Last

Resort• Controller of Credit• Custodian of Foreign Reserves

Supervisory Functions

• Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India.

• RBI wide powers of supervision and control over commercial and co-operative banks.

• The RBI is authorized to carry out periodical inspections of the banks.

• RBI have helped a great deal in improving the standard of banking in India to develop and to improve the methods of their operation.

Promotional functions

• After Indian Independence, the range of the Reserve Bank's functions has steadily widened.

• The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialized financing agencies.

• Bank has helped in the setting up of the Industrial Finance Corporation of India(IFCI) on July 1, 1948.

• It also set up the institutions to promote saving habit and to mobilize savings, and to provide industrial finance as well as agricultural finance.

• Narasimham Committee Report – 1991

The Narsimham Committee was set up in order to study the problems of the Indian financial system and to suggest some recommendations for improvement in the efficiency and productivity of the financial institution.

The committee has given the following major recommendations:-

• Reduction in the SLR and CRR : The committee recommended the reduction of the higher proportion of the Statutory Liquidity Ratio 'SLR' and the Cash Reserve Ratio 'CRR'. Both of these ratios were very high at that time. The SLR then was 38.5% and CRR was 15%. This high amount of SLR and CRR meant locking the bank resources for government uses. It was hindrance in the productivity of the bank thus the committee recommended their gradual reduction. SLR was recommended to reduce from 38.5% to 25% and CRR from 15% to 3 to 5%.

• Phasing out Directed Credit Programme : In India, since nationalization, directed credit programmes were adopted by the government. The committee recommended phasing out of this programme. This programme compelled banks to earmark then financial resources for the needy and poor sectors at confessional rates of interest. It was reducing the profitability of banks and thus the committee recommended the stopping of this programme.

• Interest Rate Determination : The committee felt that the interest rates in India are regulated and controlled by the authorities. The determination of the interest rate should be on the grounds of market forces such as the demand for and the supply of fund. Hence the committee recommended eliminating government controls on interest rate and phasing out the concessional interest rates for the priority sector.

• Structural Reorganizations of the Banking sector : The committee recommended that the actual numbers of public sector banks need to be reduced. Three to four big banks including SBI should be developed as international banks. Eight to Ten Banks having nationwide presence should concentrate on the national and universal banking services. Local banks should concentrate on region specific banking. Regarding the RRBs (Regional Rural Banks), it recommended that they should focus on agriculture and rural financing. They recommended that the government should assure that henceforth there won't be any nationalization and private and foreign banks should be allowed liberal entry in India.

• Establishment of the ARF Tribunal : The proportion of bad debts and Non-performing asset (NPA) of the public sector Banks and Development Financial Institute was very alarming in those days. The committee recommended the establishment of an Asset Reconstruction Fund (ARF). This fund will take over the proportion of the bad and doubtful debts from the banks and financial institutes. It would help banks to get rid of bad debts.

• Removal of Dual control : Those days banks were under the dual control of the Reserve Bank of India (RBI) and the Banking Division of the Ministry of Finance (Government of India). The committee recommended the stepping of this system. It considered and recommended that the RBI should be the only main agency to regulate banking in India.

• Banking Autonomy : The committee recommended that the public sector banks should be free and autonomous. In order to pursue competitiveness and efficiency, banks must enjoy autonomy so that they can reform the work culture and banking technology upgradation will thus be easy.

• Some of these recommendations were later accepted by the Government of India and became banking reforms.