Discuss any two liberalisation measures pertaining to the financial sector, introduced by the Government of India during the economic reform process of 1991.

Question

Accepted Answer

Two liberalisation measures pertaining to the financial sector:

1. **Change in Role of RBI:** The role of RBI was reduced from regulator to facilitator. As a regulator, RBI used to fix interest rate structure for commercial banks. After liberalisation, RBI facilitates free market forces to act. Greater autonomy was ensured for financial institutions.

2. **Origin of Private Banks:** The reform policies led to establishment of private sector banks, both Indian (like ICICI) and foreign (like HSBC). This increased competition and benefitted consumers through lower interest rates and better services.

3. **Increase in Foreign Investment Limit:** The limit of foreign investment in banks was raised to 74%. Foreign Institutional Investors (FII) were allowed to invest in Indian financial markets.