Narsimham Committee â?? I was appointed for (A) Agricultural sector reform (B) Industrial sector reform (C) Insurance sector reform (D) Banking sector reform

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Points to Remember:

  • The Narsimham Committee was a significant committee appointed by the Indian government to address crucial reforms in a specific sector of the Indian economy.
  • Identifying the sector targeted by the committee requires knowledge of Indian economic history and the committee’s mandate.

Introduction:

The Narsimham Committee, officially known as the Committee on the Financial System, was a crucial body appointed by the Reserve Bank of India (RBI) to address the challenges and inefficiencies within the Indian financial system. Appointed in 1991, its recommendations significantly shaped the financial landscape of India. The committee, chaired by Dr. M. Narasimham, a renowned economist, submitted two reports: one in 1991 and another in 1998. These reports focused on reforming a specific sector to enhance its efficiency, stability, and competitiveness. The question requires identifying the primary sector targeted by the committee’s reforms. This question demands a factual approach.

Body:

The Focus of the Narsimham Committee:

The Narsimham Committee primarily focused on (D) Banking sector reform. Both its reports extensively dealt with restructuring and modernizing the Indian banking system. The Indian banking sector in the early 1990s was characterized by:

  • High levels of non-performing assets (NPAs): Loans that were not being repaid, leading to significant financial losses for banks.
  • Inefficient operations: Lack of technological advancements and outdated management practices hampered efficiency.
  • Government control and interference: Excessive government intervention hindered the autonomy and competitiveness of banks.
  • Lack of competition: The banking sector was dominated by a few public sector banks, limiting consumer choice and innovation.

Key Recommendations of the Narsimham Committee:

The committee’s recommendations aimed to address these issues through several key measures:

  • Capital adequacy: Increasing the capital base of banks to absorb potential losses and enhance their financial strength. This was crucial to meet international standards (Basel Accords).
  • Asset quality: Implementing stricter measures to assess and manage credit risk, reducing NPAs.
  • Efficiency: Promoting technological advancements and improving management practices to enhance operational efficiency.
  • Deregulation: Reducing government control and promoting greater autonomy for banks to operate more efficiently and competitively.
  • Competition: Encouraging the entry of new private sector banks to increase competition and choice for consumers.

Other Sectors and their Relation to the Narsimham Committee:

While the Narsimham Committee’s primary focus was the banking sector, its recommendations had indirect implications for other sectors:

  • Industrial sector: A stronger and more efficient banking sector facilitated better credit availability for industries, promoting growth and investment.
  • Agricultural sector: Improved credit access through reformed banks indirectly benefited the agricultural sector.
  • Insurance sector: While not the direct focus, the committee’s emphasis on financial sector stability had positive spillover effects on the insurance sector.

Conclusion:

The Narsimham Committee’s primary focus was undoubtedly the banking sector reform (D). Its recommendations, implemented over time, significantly transformed the Indian banking system, making it more efficient, competitive, and resilient. While the reforms had positive ripple effects across other sectors, the core objective was to revitalize the banking sector to support India’s overall economic growth. The committee’s work serves as a valuable case study in financial sector reform, emphasizing the importance of a strong and stable banking system for sustainable economic development. The legacy of the Narsimham Committee continues to shape the Indian financial landscape, highlighting the importance of proactive and well-informed policy interventions in strengthening the nation’s economic foundation.

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