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Dissertation

Financial sector reforms in India

31 Aug 2004-
About: The article was published on 2004-08-31 and is currently open access. It has received 11 citations till now. The article focuses on the topics: Market liquidity.
Citations
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01 Jan 2005
TL;DR: The amount of foreign exchange reserves in India is modest when contpared to some of the other countries in the region and it can be argued that the proposed plan may lead to more economic difficulties than anticipated benefits as discussed by the authors.
Abstract: India's foreign exchange reserves increased during the 1990s as a result of measures introduced to liberalise capital inflows under the financial sector reforms undertaken since 1991. The Reserve Bank of India, in consultation with the government, currently manages foreign exchange reserves. As the objectives of reserve Mzanagenment are liquidity and safety, attention is paid to the currency composition and duration of investment so that a significant proportion can be converted into cash at short notice. The government of India intended to use a part of its foreign exchange reserves to finance infrastructure. Infrastructure projects in India yield low or negative returns due to difficulties political and economic especially in adjusting the tariff structure, introducing labour reforms and upgrading technology. There is no evidence that any other country has used foreign exchange reserves to finance infrastructure. The amount of foreign exchange reserves in India is modest when contpared to some of the other countries in the region and it can be argued that the proposed plan may lead to more economic difficulties than anticipated benefits.

11 citations

Posted Content
TL;DR: In the spirit of what is known as business cycle accounting, the authors finds that the investment wedge -the gap between household's rate of intertemporal substitution and the marginal product of capital -is large and quantitatively significant in explaining China's and India's growth.
Abstract: In the spirit of what is known as business cycle accounting, this paper finds that the investment wedge - the gap between household's rate of intertemporal substitution and the marginal product of capital - is large and quantitatively significant in explaining China's and India's growth. Specific financial sector policies are shown to map well the size and changes in the investment wedge. In the case of China, nonperforming loans, borrowing constraints, and uncertainty over changes in government guidance in bank lending, have implied large transfers from households to firms that have kept capital cost low and encouraged investment. In the case of India, post-1992 financial sector reforms, particularly the reduction in the funds preempted by the government from the banking system, has played an important role in reducing the cost of capital. Simulations show that for rebalancing growth in China and sustaining high investment rate in India, further financial sector reforms could turn out to be key.

10 citations


Cites background from "Financial sector reforms in India"

  • ...These reforms are well described in several papers including (Bery and Singh, 2006; Singh, 2005; Panagariya, 2004; and Mohan, 2005)....

    [...]

Journal ArticleDOI
TL;DR: In this paper, the authors have empirically established the relationship between financial sector developments and economic growth and highlighted the importance of a healthy and stable banking system in deciding the pace of development of an economy as it boosts mobilization of funds and acts as a catalyst in the country's growth process.
Abstract: Within the broad realm of financial system, the banking system is one of the pivotal integrants as banks form the major part of financial institutions in India as well as worldwide (Gerschenkron, 1962; Jadhav & Ajit, 1996). Through its intermediary activities, it facilitates the exchange of goods and services, stimulates savings and channelizes these to productive investment. A healthy and stable banking system plays a crucial role in deciding the pace of development of an economy as it boosts the mobilization of funds and acts as a catalyst in the country’s growth process. Various researchers have empirically established the relationship between financial sector developments and economic growth (Bhattacharya & Sivasubramanian, 2003; King & Levine, 1993; Levine, 2004; Rajan & Zingales, 1998; C. Singh, 2005). Strengthening of banking system and its regulation has always been one of the central issues for the policymakers in an economy on account of its direct link with the overall economic performance. India is not an exception to it. Financial soundness of banking depends upon its asset quality and in the process of providing financial assistance to the investment projects, banking institutions face inherent risk known as default risk which creates non-performing assets (NPAs). Asset quality revealed in the form of NPAs of a bank is the actual expression of its credit risk management system. The timely information relating to NPAs works as a useful tool in examining the asset quality of banks (Meeker & Gray, 1987). NPAs affect the operative capability of the banks and successively affect the profitability, liquidity and solvency of those banks (Michael, Vasanthi, & Selvaraju, 2006). No doubt, to some extent, deterioration of assets is inevitable, but it is always appreciable if these distressed assets remain at its minimum with the vital contribution of the credit risk management system. Rising NPAs generally lead Management and Labour Studies 44(3) 263–284, 2019 © 2019 XLRI Jamshedpur, School of Business Management & Human Resources Reprints and permissions: in.sagepub.com/journals-permissions-india DOI: 10.1177/0258042X19848238 journals.sagepub.com/home/mls

6 citations


Cites background from "Financial sector reforms in India"

  • ...Various researchers have empirically established the relationship between financial sector developments and economic growth (Bhattacharya & Sivasubramanian, 2003; King & Levine, 1993; Levine, 2004; Rajan & Zingales, 1998; C. Singh, 2005)....

    [...]

Journal ArticleDOI
TL;DR: The burden of social agenda has largely been shouldered by public sector banks without any compensation as mentioned in this paper, therefore, in the interest of maintaining credibility of PSBs which account for nearly 70 percent of banking activity in the country, the government is justified in recapitalizing the PSBs regularly, and there is need to undertake research on evolving appropriate norms, granular, for evaluating performance of different banks operating in India without stifling flow of credit to productive sectors.
Abstract: In India, banks have played an important role in economic growth and development. Since the 1970s, public sector banks (PSBs) have been in the forefront of mobilizing resources from far flung rural areas as well as extending banking services in the remotest parts of the country. The burden of social agenda has largely been shouldered by PSBs without any compensation. Therefore, in the interest of maintaining credibility of PSBs which account for nearly 70 percent of banking activity in the country, the government is justified in recapitalizing the PSBs regularly. However, there is need to undertake research on evolving appropriate norms, granular, for evaluating performance of different banks operating in India without stifling flow of credit to productive sectors.

4 citations

Journal ArticleDOI
TL;DR: In this paper, a comparison of China's and India's economic trajectories over the last 40 years reveals the massive potential of targeted policies for economic development (in general) and economic growth (in particular).
Abstract: The comparison of China’s and India’s economic trajectories over the last 40 years reveals the massive potential of targeted policies for economic development (in general) and economic growth (in particular). In the early 1980s India and China had a roughly similar GDP and up until 1990 India had a higher GDP per capita. Fast-forward to 2018 and … India’s economy is 5 times smaller than China’s and GDP per capita is $2010 in India vs. $9771 in China. Accordingly, nowadays most of the major economic development indicators are in China’s favor – for instance, in 2017 the value of China’s exports of high-technology products was 43 times higher than India’s. The relevant question here seems to be ‘how did China manage to outgrow India economically by such a margin in the span of four decades?’ This paper attempts to answer it by: 1. Examining the economic reforms that China and India underwent in the late 1970s, the 1980s and the 1990s. 2. Comparing key macroeconomic indicators: GDP (incl. GDP per capita), exports and imports, net FDI inflows, and domestic credit to private sector. 3. Comparing human capital indicators, infrastructure quality, and the innovation ecosystems of India and China.

3 citations

References
More filters
Journal ArticleDOI
TL;DR: In this paper, the effects of economic liberalization of 1991 on the price responsiveness of aggregate private investment in India were examined, and empirical results showed a dramatic increase in the price response; the elasticity of investment with respect to the relative cost of capital has increased five times after the dismantling of the ‘Licence Raj.
Abstract: . This paper presents evidence on the effects of economic liberalization of 1991 on the price responsiveness of aggregate private investment in India. The wide ranging reforms are expected to increase the price response of private investment due to (i) the Le Chatelier effect, (ii) a higher price elasticity of demand for final goods, and (iii) possible relaxation of the credit constraint. The empirical results, based on alternative specifications, estimation methods, and sample periods, show a dramatic increase in the price response; the elasticity of investment with respect to the relative cost of capital has increased five times after the dismantling of the ‘Licence Raj.’ Ce texte examine les effets de la liberalisation de 1991 sur la reponse des prix de l’investissement prive agrege en Inde. On aurait pu s’attendre a ce que ces reformes importantes accroissent la reponse des prix de l’investissement privea cause (i)de l’effet Le Chatelier, (ii) de la plus forte elasticite de la demande de biens finaux, et (iii) de la relaxation possible de la contrainte financiere. Les resultats empiriques fondes sur des specifications, des methodes d’estimation, et des periodes d’echantillonnage differentes, suggerent un accroissement dramatique dans la reponse des prix; l’elasticite de l’investissement par rapport au cout relatif du capital s’est accru par un facteur de 5 apres le demantelement du regime Raj.

43 citations

01 Jan 2005
TL;DR: The amount of foreign exchange reserves in India is modest when contpared to some of the other countries in the region and it can be argued that the proposed plan may lead to more economic difficulties than anticipated benefits as discussed by the authors.
Abstract: India's foreign exchange reserves increased during the 1990s as a result of measures introduced to liberalise capital inflows under the financial sector reforms undertaken since 1991. The Reserve Bank of India, in consultation with the government, currently manages foreign exchange reserves. As the objectives of reserve Mzanagenment are liquidity and safety, attention is paid to the currency composition and duration of investment so that a significant proportion can be converted into cash at short notice. The government of India intended to use a part of its foreign exchange reserves to finance infrastructure. Infrastructure projects in India yield low or negative returns due to difficulties political and economic especially in adjusting the tariff structure, introducing labour reforms and upgrading technology. There is no evidence that any other country has used foreign exchange reserves to finance infrastructure. The amount of foreign exchange reserves in India is modest when contpared to some of the other countries in the region and it can be argued that the proposed plan may lead to more economic difficulties than anticipated benefits.

11 citations

Posted Content
TL;DR: In the spirit of what is known as business cycle accounting, the authors finds that the investment wedge -the gap between household's rate of intertemporal substitution and the marginal product of capital -is large and quantitatively significant in explaining China's and India's growth.
Abstract: In the spirit of what is known as business cycle accounting, this paper finds that the investment wedge - the gap between household's rate of intertemporal substitution and the marginal product of capital - is large and quantitatively significant in explaining China's and India's growth. Specific financial sector policies are shown to map well the size and changes in the investment wedge. In the case of China, nonperforming loans, borrowing constraints, and uncertainty over changes in government guidance in bank lending, have implied large transfers from households to firms that have kept capital cost low and encouraged investment. In the case of India, post-1992 financial sector reforms, particularly the reduction in the funds preempted by the government from the banking system, has played an important role in reducing the cost of capital. Simulations show that for rebalancing growth in China and sustaining high investment rate in India, further financial sector reforms could turn out to be key.

10 citations

Journal ArticleDOI
TL;DR: In this paper, the authors have empirically established the relationship between financial sector developments and economic growth and highlighted the importance of a healthy and stable banking system in deciding the pace of development of an economy as it boosts mobilization of funds and acts as a catalyst in the country's growth process.
Abstract: Within the broad realm of financial system, the banking system is one of the pivotal integrants as banks form the major part of financial institutions in India as well as worldwide (Gerschenkron, 1962; Jadhav & Ajit, 1996). Through its intermediary activities, it facilitates the exchange of goods and services, stimulates savings and channelizes these to productive investment. A healthy and stable banking system plays a crucial role in deciding the pace of development of an economy as it boosts the mobilization of funds and acts as a catalyst in the country’s growth process. Various researchers have empirically established the relationship between financial sector developments and economic growth (Bhattacharya & Sivasubramanian, 2003; King & Levine, 1993; Levine, 2004; Rajan & Zingales, 1998; C. Singh, 2005). Strengthening of banking system and its regulation has always been one of the central issues for the policymakers in an economy on account of its direct link with the overall economic performance. India is not an exception to it. Financial soundness of banking depends upon its asset quality and in the process of providing financial assistance to the investment projects, banking institutions face inherent risk known as default risk which creates non-performing assets (NPAs). Asset quality revealed in the form of NPAs of a bank is the actual expression of its credit risk management system. The timely information relating to NPAs works as a useful tool in examining the asset quality of banks (Meeker & Gray, 1987). NPAs affect the operative capability of the banks and successively affect the profitability, liquidity and solvency of those banks (Michael, Vasanthi, & Selvaraju, 2006). No doubt, to some extent, deterioration of assets is inevitable, but it is always appreciable if these distressed assets remain at its minimum with the vital contribution of the credit risk management system. Rising NPAs generally lead Management and Labour Studies 44(3) 263–284, 2019 © 2019 XLRI Jamshedpur, School of Business Management & Human Resources Reprints and permissions: in.sagepub.com/journals-permissions-india DOI: 10.1177/0258042X19848238 journals.sagepub.com/home/mls

6 citations

Journal ArticleDOI
TL;DR: The burden of social agenda has largely been shouldered by public sector banks without any compensation as mentioned in this paper, therefore, in the interest of maintaining credibility of PSBs which account for nearly 70 percent of banking activity in the country, the government is justified in recapitalizing the PSBs regularly, and there is need to undertake research on evolving appropriate norms, granular, for evaluating performance of different banks operating in India without stifling flow of credit to productive sectors.
Abstract: In India, banks have played an important role in economic growth and development. Since the 1970s, public sector banks (PSBs) have been in the forefront of mobilizing resources from far flung rural areas as well as extending banking services in the remotest parts of the country. The burden of social agenda has largely been shouldered by PSBs without any compensation. Therefore, in the interest of maintaining credibility of PSBs which account for nearly 70 percent of banking activity in the country, the government is justified in recapitalizing the PSBs regularly. However, there is need to undertake research on evolving appropriate norms, granular, for evaluating performance of different banks operating in India without stifling flow of credit to productive sectors.

4 citations