ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Revisiting the Exchange Standard, 1898-1913

Operations formed the core of the new standard. Curzon's unusual despatch of 1900 began it, permitting free sale of council bills, ostensibly for 'convenience of trade' (words the Chamberlain Commission wished to bury); really to get funds in London faster than accumulating coinage profits. We apprehend that with London's financial market recently internationalised, the India Office-Exchange Banks' tie-up gave them added power over disposition of India's exchange earnings. The Commission justified hurried transfer of large funds to London, for its 'present and prospective ends', using every possible means, some we reveal. All this impinged on a weak economy, precipitating ominous rise of prices, attracting notice of all, the viceroy included, and endangering the welfare of many millions, and perhaps storing up difficulties for the future. We shall turn to that in Part III.

Banking: Missing Dynamism

Even as banks have come to possess a growing share of the community's financial resources, it is the absence of dynamism shown by them in expanding their credit base regionally, functionally and by the size of borrowers that continues to hurt the process of domestic investment and growth. It is necessary for them in a competitive environment to introduce more dynamic instruments of lending and enhance organisational capabilities to shoulder more nuanced lending practices, both of which are missing in the current banking scenario.

Stable Interest Rates Profile

With all-round downward movement of rates of all types and maturities in the past three years, near-stability in the interest rates profile has been achieved. RBI policies of low Bank rate, active management of liquidity and signalling its preference for softening of interest rates have contributed to this development.

Low Public Investment Impacts on Capital Market

The persisting low economic growth is having an impact on the financial sector: apart from the recent disquieting developments, the setback to funds mobilisation through public issues which began in the mid 1990s is contributing to a depressing scenario in the capital market and the secondary segment is in a worse state. This has shifted the impetus to the growth of bank deposit with no improvement however in household savings. The severe liquidity strain in the industrial sector has prompted the postponement of investment decisions by entrepreneurs. This is likely to sharply expand the size of non-performing assets of banks and financial institutions .
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