“During the 1991 economic reforms, the Government undertook a range of financial sector reforms which made a significant impact in the years to follow.”
Justify the given statement with valid arguments.
“During the 1991 economic reforms, the Government undertook a range of financial sector reforms which made a significant impact in the years to follow.”
Justify the given statement with valid arguments.
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Solution and Explanation
The statement says the 1991 financial sector reforms had a big impact later.
We justify it by showing what changed and what the result was. The answer is marked as a whole for 4 marks.
Step 2: Change in the role of the RBI:
Before 1991 the Reserve Bank of India (RBI) acted as a regulator, controlling banks in detail.
After the reforms its role changed from regulator to facilitator.
This means the financial sector could take decisions on many financial matters without consulting the RBI.
Step 3: Entry of private and foreign banks:
The policy changes led to the setting up of private sector banks, both Indian and foreign.
Banks also got more freedom, for example to open branches under set conditions.
The foreign investment limit in banks was raised, so more foreign capital came in.
Step 4: Impact in the years that followed:
More banks meant more competition, so banks became more efficient and customers got better service.
The Indian financial sector also became linked with the global financial system.
A stronger and more stable financial sector supported the overall growth of the economy.
Final Answer:
The reforms changed the RBI from regulator to facilitator and allowed private and foreign banks. This raised efficiency, competitiveness and global integration, and contributed to growth and stability, so the statement is justified.
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