The Evolution of Indian Finance
Pre-Independence Era:
1. Ancient Period: In the early days of India, people used the systems of barter and coins as a mode of exchange. As trade and commerce progressed, new banking technologies emerged, including sresthins and shroffs who would buy and lend money. The Maurya and Gupta empires had a developing economy that relied on taxation and the use of coins for the operations of the state.
2. Medieval Period: There was a move towards centralised collection of taxes during the Mughal dynasty. As a form of land taxation, the Mughal regime adapted Zabti and Jizyah systems, while Shahis banks supported commercial activities. Moneylenders started to become more prominent, particularly in the villages.
3. Banking System: The Bengal Bank, the Bombay Bank and the Madras Bank were all founded during British rule, and these three banks later became the Imperial Bank of India, now called the State Bank of India. The history of the emergence of finance was mainly focused on the colonialist interests.
In general, the financial system of Modern India was defined during the time prior to independence from British rule, although many were shaped by colonial needs.
Post-Independence Era: The transformative journey traversed by Indian finance after its independence can be divided into different phases. With that in mind, examine the following observations:
1. Early Post Independence Period (1947-1950s):
• A combination of weak financial systems and limited industrial development was what the nation inherited.
• As a result of the war, the economy became more focused on state control over specific industries.
• The banking nationalization that occurred in 1947 set the stage for significant involvement of the state-owned structure.
2. Planning Era (1950s-1970s):
• The commission aimed at expediting economic progress through the implementation of 5 year plans.
• The focus on private public companies as well as heavy industries resulted in the expansion of basic facilities.
• Such resources to implement these plans were provided through the creation of institutions like LIC, SBI, IDBI amongst others.
3. Economic Policies Change (1991):
• This day can also be noted as the turning point for the Indian economy as this is the day when then finance minister Manmohan Singh initiated liberalization reforms.
• India became more of a regime which goes with the market’s law due to the less government in terms of imports as well as favouring foreign investments.
• Dramatic change occurred with respect to banking, finance and capital markets enhancing privatization and competition.
4. Development and Progression (2000s – Now):
• Expansionary policies towards foreign investment resulted in high economic growth as well as boom of the stock market.
• Emerging technologies like mobile banking and digital finance changed the shapes of the finance sector.
• Schemes by the Indian Government with an intent of financial inclusion such as Jan Dhan Yojana & UPI were instrumental in getting the Indian unbanked youth on board.
Generally speaking, Indian finance has changed from being predominantly state-directed to a more deregulated, free-market system which has enhanced the growth of the economy.
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