What reforms were introduced by indhira gandhi
Answers
Explanation:
In 1969, Prime Minister Indira Gandhi announced the nationalisation of 14 banks. At the time, Mrs Gandhi faced a challenge from the old guard in the Congress . She also believed that the private owners of banks were in cahoots with the Swatantra Party. By nationalising banks and sacking Morarji Desai as finance minister, Mrs Gandhi felt she could upstage her opponents within and outside the Congress, bolster her slogan of garibi hatao and gain the votes of the nation’s poor. She succeeded admirably.
Politicians will always have an eye on votes. The test of their actions is whether there is congruence between their pursuit of power and the larger national interest . Was there more to bank nationalisation than sheer political opportunism?
Even then, there were reasons to think so. Mrs Gandhi had advocated ‘social control’ of banks as early as in 1967 after the Congress debacle in the general elections. At the time of bank nationalisation, she said that it was needed in order to reach banking to the weaker sections of society.
In retrospect, the economic argument for bank nationalisation becomes even clearer. I explained this in an article in EPW (March 11, 2007). Under government ownership, bank branches jumped from 8,000 in 1969 to 32,000 in 1980 and further to 60,000 in 1990. Savings are not money under the mattress . Savings are what come into the financial system. By sweeping money from individuals into the financial system , bank branch expansion caused in an increase in the savings rate from 12% in 1969 to 20% in 1980.
The steep rise in the savings rate, in turn, set the stage for the growth of 5.5-6 % that we saw in the eighties. There is thus a clear link between bank nationalisation and the acceleration in India’s economic growth. Growth has gained further momentum since. But the breakout in the eighties was crucial.
Critics of bank nationalisation say that it made a complete mess of a big chunk of India’s banking system. They also claim that the same objectives could have been better met through regulation instead of government ownership. These points do not stand up to scrutiny.
TRUE , profitability in banking took a beating consequent to nationalisation . But that is because for two decades thereafter, public sector banks were told to grow their balance sheets. They did a great job of this. Consequent to deregulation in the nineties, they were asked to focus on profitability. They have done a good job of this as well. As a result, we have today a banking system that is among the most profitable in the world.
Today, if Indian banking is sound and profitable, it is because of the large network of branches created in the nationalised era. Thanks to this, one third of deposits in Indian banking are lowcost deposits. Thus, the two phases, bank nationalisation and deregulation, are not distinct but inter-linked . It was the investment in distribution made in the first phase that made possible the improvement in performance in the second.