Kripali Agarwal FE 1722

Aditi Varma
Abhiroop Agarwal
Aastha Jain
 1980-1997 is the period of transformation of the Indian
economy from a regime of restrictions to progressive
liberalization.

The 1980s were characterized by:

- an expansionary fiscal policy

- automatic monetization of budgetary deficit
- a heavily regulated banking system.

The domestic macroeconomic imbalances combined with

deteriorating external conditions triggered the balance of
payments (BOP) crisis of 1991.
 IAS; served as Secretary, Finance and Executive Director of the
IMF.

Money markets and new instruments were introduced.

The Discount and Finance House of India

The National Housing Bank

The Indira Gandhi Institute of Development Research.

In the field of rural finance, the Service Area Approach was

adopted as an approach to catalyse the flow of credit through
commercial banks.

500 note was introduced.

 IAS; served as Finance Secretary and adviser to the
Government of Karnataka.

BOP Crisis: Risk of default on external obligations.

Reforms in close co-ordination with Dr. Manmohan Singh,

Finance Minister.

Pledged Gold to raise resources.

Adopted a 20 month IMF programme of stabilisation and

structural adjustment; the underwent a devaluation.
 A professional economist. Deputy Governor for over a
decade before. A member of the Planning Commission
and a member of the Tenth Finance Commission.

Unprecedented central bank activism to strengthen and

improve the competitive efficiency of the financial
sector.

New institutions and instruments ;

unified exchange rate.

The historic memorandum signed between the Bank and

the Government whereby a cap was put on the automatic
finance by the Bank to the Government in the form of ad
hoc treasury bills.
 Earlier: CEA to GOI; Chairman of Economic Advisory
Council to the PM; executive boards of IMF and World
Bank.

Asian Crisis; Gains from liberalisation and economic

reforms.

Demystified the Monetary Policy.

Strengthened the banking sector;

new institutions and instruments.

Strengthening of BOP and FOREX position

Low Inflation; Soft Interest Rates.

 IAS; former Deputy Governor of RBI; India's Executive
Director on the Board of the International Monetary Fund.

Calibrated approach to financial sector reforms.

Financial Inclusion with the aid of Information Technology.

Discouraged banks from speculating on the real estate

sector.
Banned the use of Bank loans for the purchase of raw land.
Curtailed Securitisation and derivatives.
Prohibited off balance sheet financing.
Increased risk weightings on commercial buildings.
Increased bank reserve requirements.

Subjected NBFCs to greater scrutiny.

Major role in decontrolling the INR/USD exchange rate.

1. R.N. Malhotra:
As the 17th governor of RBI, he laid huge
emphasis on developing money market
instruments. Direct impact of which was
the departure from age old ways by which
corporations borrowed money.
Second significant development was the
introduction of Rs 500 notes that eased
cash transactions.
2. S. Venkitaraman:
His tenure faced difficulties related to
external sector. This was the time Indian
economy was going through the 1991 crisis
and subsequent adoption of LPG model. The
highlight here was the devaluation of rupee
in accordance with IMFs stabilization
program. Standard mechanics picked up to
boost exports which also supplemented
efforts to restore macroeconomic balance.
3. C. Rangarajan:
Huge emphasis on financial sector reforms.
Reorientation of reserve requirements in
order to improve banks lending facility. This
brought in easier loans in markets that were
needed for an economy recovering from a
BOP crisis.
Active career as a member of Rajya Sabha.
4. BIMAL JALAN:
Successful in eliminating the slight or potential
effects of the East Asian Crisis by providing wide
ranging reforms in financial sector.
1000 rupee notes were introduced.

5. 5. Y.V. REDDY:
His works have closely been associated with
institution building. The landmark policy that
was enacted included banning the use of bank
loans for purchase of raw land.
 Impact On Indian Economy

S.Venkitaramanan played a major role in bringing India

out of the Balance of payments crisis.

1. Rate of inflation: 10%(1990-91),13%(1991-92)

2. Current account deficit:17350cr(1990-91)
3. Foreign exchange
reserves:2150cr(1990),2500cr(1991)

The RBI governor talked to the heads of

other central banks for immediate
funding,and was succesful in securing a
loan of 600 million from the Central Bank
of Switzerland and England.He thus saved
the government from default.
C.Rangarajan brought about a number of reforms both in the real
and financial sector after assuming office.

1.Giving autonomy to the RBI in relation to the

conduct of monetary policy.
2.Statutory Liquidity Ratio was brought down
steadily from 38.5% in 1991 to 25% by 1996.
3.In march 1993,India moved to a unified-market
determined exchange rate system.
Economic Indicators

1. Foreign exchange reserves scaled to US$

26.4 billion in 1996-97
2. The exchange rate remained steady against
the dollar for a long period at 31.87
Bimal Jalan joined during the East asian crisis and is known as
the Knight of January 14th for handling the rupee depreciation
Because of the East Asian Crisis the rupee was depreciating at a
fast rate

Policies to control the depreciation

He hiked the short term interest rate by 200 basis points and
also the CRR.The idea was to restrict the supply of liquidity.His
policy was a success.The rupee stopped from depreciating.There
was increase in foreingn currency reserves from 27.8 bn to
59.5 bn during his tenure

Other Policies

1.Introduced the Resurgent India bonds which incresed capital

flows in the country.
 Inflation rose by 600 basis Points
Repo rate was hiked by only 200 basis points
This Implies Real interest rates have falled
Raised the reserve requirements of banks to
ensure that banks donot lend excessively
Disallowed bank loans to purchase raw land
His policies helped India sail through the
2008 financial crisis with minimal effect
 During his tenure, he was subject to criticism
because of a severe balance of payment
crisis which were further unfolded in 1990-
91.
1990 was the year of the perfect storm:
severe political uncertainty at home, a near-
bankrupt treasury, and global turmoil after
Saddam Hussein invaded Kuwait.
 Under his tenure the country faced difficulties related to the external
sector.
The securities scam of 1992:
Harshad Mehta, along with his associates, was accused of manipulating
the rise in the Bombay Stock Exchange (BSE) in 1992. They took
advantage of the many loopholes in the banking system and drained off
funds from inter-bank transactions. Subsequently, they bought huge
amounts of shares at a premium across many industry verticals causing
the Sensex to rise dramatically. However, this was not to continue. The
exposure of Mehta's modus operandi led banks to start demanding their
money back, causing the Sensex to plunge almost dramatically as it had
risen.
There was much criticism and he had to go after a two-year term. The
RBI stood indicted because despite knowledge about banks over-
stepping the boundaries demarcating their arena of operations,it
failed to reign them in.
Some of the control systems in the banks broke down because they had
been deliberately allowed to weaken by both the commercial banks as
well as the RBI in order to facilitate normal transactions in violation of
the RBI guidelines
The report of the Rangarajan Panel on poverty measurement
released a new set of poverty lines, which were
Persons spending below Rs. 47 a day in cities should be
considered poor
A person spending less than Rs. 1,407 a month (Rs. 47/day)
should be considered poor in cities
A person spending less than Rs. 972 a month (Rs. 32/day) should
be considered poor in villages
The estimates provided by the them were subject to criticism on
the grounds that
The Committee overlooks the fact that aggregation issues arise in
the case of expenditure-based poverty rates as well
The Committee had the opportunity to embrace both concepts
of poverty into a comprehensive measure, especially given Indias
unique databases provided by the NSS and NFHS, but it failed to
do so.
Another implication is the need to draw separate poverty lines
for families differing in size and composition, as done in the US
 The multiple-indicators approach, as conceptualized
when Dr. Bimal Jalan in April 1998 with a greater emphasis
on rate channels for monetary policy formulation.
This large panel of indicators was criticized as a 'check list'
approach, as it does not provide for a clearly defined
nominal anchor for monetary policy. However, given the
level of financial market development, the evolving nature
of monetary transmission and the need to maintain the
resource balance between the government and the private
sector, monetary policy assessment becomes inherently
complex.
Globally, the task of monetary management became more
challenging. In view of central banks operating in an
environment of high uncertainty regarding the functioning
of the economy , a single model or a limited set of
indicators may not be a sufficient guide for monetary
policy .
 During his tenure,the Reserve Bank of India blocked critical
reforms including
opening the domestic bond market to foreign investors,
allowing banks and businesses to trade more freely in currency
markets and
letting Indian institutions invest freely overseas.
The R.B.I. under Reddy was too skeptical of industry-led innovation
and too partial to officially led innovation.
Inflation was nearly 3 per cent in late 2003 when Y V Reddy
became the RBI governor. But, by 2008 August, inflation was over
9 per cent. This means that inflation rose by 600 basis points in
this period, while the hike in repo rate (7 in September 2003 to 9
to September 2008) was merely 200 basis points. This means that
real interest rates have fallen because interest rates in this
period had not rise proportionately.
In that period, many economists pointed out, that as the RBI did not
hike the repo rate adequately when inflation reached high levels,
the general public felt that monetary policy would not quickly
adjust to fluctuations in the value of money.