abhishreshthaa
Abhijeet S
The pre-liberalisation period visualized a subordination of the financial system to the perceived needs of economic development. To this end, the interest rates were kept low. Banks and financial institutions were required to hold government securities upto a certain percent of their total liabilities, permitting the easy sale and cheap servicing of public debt, credit was directed to priority sectors , especially agriculture, the RBI was retained as a part of the government and hence accountable to the parliament for its actions.
There were problems with this regime arising from the fact that the economy was experiencing capitalist development and hence the credit needs of vast masses of small producers and even small capitalist could not be met cheaply from institutional sources.
But within this overall constrain the logic of the regime was to make the financial sector serve the needs of development, which, it was believed, necessitated its four features, namely:
its being anchored to the national economy
detatched from world’s financial flows
Its being obliged to give precedence to production over speculation for which it also had to observe control on the price and direction of credit.
Its being accountable to the people via the government.
The purpose of financial liberalization is to reverse all these features
to detatch the infancial sector from its anchorage in the domestic economy and to make it a part of the international financial sector
To make it operate according to the dictates of the market which means the end of cheap interest rates of the regime of directed credit and of the distinction between productive and speculative credit needs.
To remove it from the ambit of accountability to the people.
There were problems with this regime arising from the fact that the economy was experiencing capitalist development and hence the credit needs of vast masses of small producers and even small capitalist could not be met cheaply from institutional sources.
But within this overall constrain the logic of the regime was to make the financial sector serve the needs of development, which, it was believed, necessitated its four features, namely:
its being anchored to the national economy
detatched from world’s financial flows
Its being obliged to give precedence to production over speculation for which it also had to observe control on the price and direction of credit.
Its being accountable to the people via the government.
The purpose of financial liberalization is to reverse all these features
to detatch the infancial sector from its anchorage in the domestic economy and to make it a part of the international financial sector
To make it operate according to the dictates of the market which means the end of cheap interest rates of the regime of directed credit and of the distinction between productive and speculative credit needs.
To remove it from the ambit of accountability to the people.