Banking Awareness : Chakravarty Committee Recommendations

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The committee to review the working of the monetary system headed by S. Charavarty submitted its report to the RBI in April 1985. Its main recommendations were as follows.

1. The Committee had stressed the need to pursue price stability as the primary objective of the monetary policy. The committee pointed out that the factor that contributed to colossal increase in money supply had been the RBI's credit to the government.
2. The committee suggested a change in the definition of budgetary deficit. The budgetary deficit of the Central Government was measured in terms of an increase in treasury bills. In the opinion of the committee, this overstated the extent of the monetary impact of fiscal operations because no distinction was made between the absorption of treasury bills and the increase in the holding of treasury bills by the RBI. 
   
3. The Committee was of the view that banks should have greater freedom in determining their lending rates. Further, the Committee strongly felt that concessional interest rates as a redistributive device should be used in a very selective manner.
4. The Committee did not favor continuance of cash credit as the predominant form of bank credit. In its opinion, certain measures should be undertaken to encourage loans and bill finances forms of bank credit. It also stressed the importance of credit delivery system in the area of priority sector lending.

That's all for now friends. In our next post we shall discuss about the Reserve Bank of India (Amendment) Bill 2006. Happy Reading :)

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