Banks in India have witnessed radical transformation as
a result of the banking reforms which were taken up during
1990s, as part of the economic reforms. The provocation
for economic reforms was the crisis- like situation in the
nation, in the spheres of economy, external sector and fiscal
sector. India's external reserves were at their lowest at
that time, hardly sufficient to cover four days of imports.
Consequently, India faced a near-default situation.
Import
compression, export pessimism, double-digit inflation, a
very low Hindu rate of Gross Domestic Product (GDP) growth,
outdated policy of export substitutions, high tariffs, taxes
and trade barriers, a bureaucracy that was strongly entrenched
in permit, license and quota raj, an inefficient domestic
industrial environment that enjoyed state protection and
the near absence of entrepreneurial skills, etc., contributed
to this dismal situation.The first wave of economic reforms addressed the challenges
in the fiscal system, through a meaningful monetary policy
and external sector policies. Financial sector reforms tackled
the weaknesses of the banking sector and those of the developmental
financial institutions, and financial markets.
It is necessary
to present these reforms in their perspective, to comprehend
their effectiveness, and to identify the areas that still
need further reforms.Tax system in India, suffered from very high rates and absence
or lack of incentives for entrepreneurial skills and hence
was considered as generally regressive. The reforms process
brought in a substantial fall, over a period, in excise,
customs and income taxes. Import liberalization in place
of import compression and export competitiveness rather
than export pessimism, were the essential changes that followed.
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