I.D.B.I. Assistant Manager Exam., 2010

General and Financial Awareness

(Held on 14-11-2010)

1. The present Cash Reserve Ratio is—
(A) 5%
(B) 5.5%
(C) 6%
(D) 6.5%
(E) None of these
Ans : (C)

2. One of the objectives of KYC (Know Your Customer) norms is—
(A) to give boost to bank deposits
(B) to safeguard banks advances
(C) to monitor transactions of suspicious nature
(D) to help income tax authorities to collect income tax
(E) None of these
Ans : (C)

3. Contribution to Prime Minister's relief fund enjoys Income Tax benefit up to—
(A) 50% under section 80G
(B) 75% under section 80G
(C) 100% under section 80 G
(D) 100% under section 88
(E) No exemption is available
Ans : (C)

4. Which of the following activities are expected to be performed by the Business correspondents ?
(A) Disbursal of small value credit
(B) Collection of small value deposits
(C) Sale of micro insurance /mutual fund products
(D) All the three above
(E) Only (B) and (C) above
Ans : (E)

5. Tax at source by banks is deducted on interest paid on term deposits in the interest amount in a financial year exceeds—
(A) Rs. 3,000
(B) Rs. 5,000
(C) Rs. 10,000
(D) Rs. 15,000
(E) There is no such provision
Ans : (B)


6. Securitisation and Reconstruction of Financial Assets and Enforcement of security Interest Act relates to—
(A) Sanction of loans
(B) Enhancement of loan limits
(C) Recovery of loans
(D) All the above
(E) None of above
Ans : (C)

7. MSMED Act is applicable to—
(A) Smalls enterprises only
(B) Medium enterprises only
(C) Micro enterprises only
(D) Micro, Small and Medium enterprises
(E) All enterprises irrespective of their size engaged in manufacturing activity
Ans : (D)

8. Money Laundering refers to—
(A) Conversion of assets into cash
(B) Conversion of Money which is illegally obtained
(C) Conversion of cash into gold
(D) Conversion of gold into cash
(E) None of the above
Ans : (B)

9. The Monetary and Credit Policy is reviewed by the RBI after a gap of—
(A) one year
(B) one month
(C) two years
(D) five years
(E) None of these
Ans : (E)

10. PPF account is opened for a period of—
(A) 5 years
(B) 10 years
(C) 15 years
(D) 20 years
(E) None of these
Ans : (C)

11. Yuan is the currency of—
(A) Japan
(B) China
(C) Indonesia
(D) Myanmar
(E) None of these
Ans : (B)

12. National savings certificate matures at the end of—
(A) Six years
(B) Three years
(C) Six and half years
(D) Five years
(E) Five and half years
Ans : (A)

13. Normally Bank accept Fixed Deposits for a maximum period of—
(A) 5 years
(B) 3 years
(C) 10 years
(D) 20 years
(E) Any number of years
Ans : (E)

14. Code of banks commitment to Micro and Small enterprises is prepared by—
(A) RBI
(B) SEBI
(C) FEDAI
(D) BCSBI
(E) Ministry of Small and Medium Enterprises
Ans : (E)

15. Which one of the following is not a salient feature of debit card ?
(A) No bad debts to banks and no suits for recovery
(B) No interest earning for banks
(C) Works like a normal withdrawal
(D) All the above
(E) 45 dayes credit is given to the card holder
Ans : (E)

16. IFRS stands for—
(A) International Financial Reporting standards
(B) Indian Financial Rating Standards
(C) International Financial Rating Standards
(D) All the three above
(E) None of the above
Ans : (A)

17. What is the present Repo Rate ?
(A) 5%
(B) 5•5%
(C) 6%
(D) 6•5%
(E) None of these
Ans : (E)

18. There are certain financial instruments whose prices are derived from the price of the underlying currency of interest rate or stocks etc. These are known as—
(A) Derivatives
(B) Securitisation
(C) Leasing
(D) Factoring
(E) Venture Capital Funding
Ans : (A)

19. What is the full form of ASBA ?
(A) Allotment supported by Blocked Amount
(B) Application supported by Blocked Amount
(C) Application supported by Bank Amount
(D) Allotment supported by Bank Account
(E) None of the above
Ans : (B)

20. Reverse Repo is used by RBI to—
(A) Inject liquidity
(B) Absorb liquidity
(C) Increase the liquidity with banking system
(D) Keep the liquidity at one level
(E) None of the above
Ans : (D)

21. Which of the following is not considered as lending under infrastructure sector ?
(A) A Highway project
(B) Construction of Educational Institution
(C) Construction of Hospital
(D) Laying down of petroleum pipelines
(E) None of the above
Ans : (E)

22. KYC guidelines have been framed on the recommendations/as per guidelines of—
(A) Reserve Bank of India
(B) Ministry of Finance
(C) Indian Banks Association
(D) Financial Action Task Force
(E) Ministry of Home affairs
Ans : (A)

23. The term ‘Power of Attorney’ refers to—
(A) Power of a person
(B) An authority to operate a Bank account
(C) An instrument by which a person is empowered to act for another person
(D) All of the above
(E) None of the above
Ans : (C)

24. What is the amount of compensation to be paid per day, as per RBI directives in case of failed ATM transactions ?
(A) Rs. 50
(B) Rs. 100
(C) Rs. 200
(D) Rs. 500
(E) It is at the discretion of each Bank
Ans : (B)

25. Financial Action Task Force has an office in India at which place ?
(A) Mumbai
(B) Chennai
(C) Kolkata
(D) New Delhi
(E) All the above places
Ans : (D)

26. Bridge loans refer to—
(A) Loans granted to contruction companies for construction of bridges
(B) Loan granted to PWD for construction of bridges over Rivers
(C) Interim finance allowed by banks to their customers pending disbursement of term loans by financial institutions
(D) All of the above
(E) None of the above
Ans : (C)

27. Payment of Demand Draft can be stopped by—
(A) Payee
(B) Holder
(C) Purchaser
(D) All of these
(E) None of these
Ans : (A)

28. Can any one file an appeal against the order passed by the Banking Ombudsman ? If so who is the Appellate Authority ?
(A) The Chairman of concerned Bank
(B) The Deputy Governor RBI
(C) Governor of RBI
(D) Finance Minister
(E) None of the above
Ans : (B)

29. For which one of the following reasons, the Government has approved a plan to infuse Rs. 15,000 crore capital into PSBs ?
(A) To boost their lending capacity
(B) To maintain minimum CRAR as per Basel II norms
(C) To maintain NPA provision coverage ratio
(D) To strengthen the Balance Sheet of banks
(E) None of these
Ans : (A)

30. What is monetary policy transmission ?
(A) It refers to monetary policy of Central Bank
(B) It refers to fiscal policy of Government
(C) It refers to various channels through which the monetary policy of a Central Bank alters prices or output in the real economy
(D) It refers to various channels through which the fiscal policy of the Government alters prices or output in the real economy
(E) None of these
Ans : (C)

31. On which one of the following issue IMF has supported monetary policy of India ?
(A) Tightening of monetary policy
(B) Stimulus for agriculture sector
(C) Concessions for foreign investment
(D) Introduction of GST
(E) None of these
Ans : (A)

32. The advantage of convenience in credit card operations is for—
(A) Customer
(B) Members Establishments
(C) Banks
(D) All the above
(E) None of the above
Ans : (D)

33. Under provisions of which one of the following Acts, CAs/CS have been told to report all suspicious fund trasnfers ?
(A) RBI Act
(B) Banking Regulation Act
(C) Indian Companies Act
(D) Unlawful Activities (Prevention) Act
(E) None of these
Ans : (D)

34. Bancassurance is—
(A) an insurance scheme to insure bank deposits
(B) an insurance scheme exclusively for the employees of banks
(C) a composite financial service offering both bank and insurance product
(D) a bank deposits scheme exclusively for employees of insurance companies
(E) None of the above
Ans : (C)

35. In the term STRIPS, the first letter ‘S’ denotes—
(A) Separate
(B) Small
(C) Special
(D) Savings
(E) None of these
Ans : (A)

36. Which of the following organizations, provide credit history of the borrowers ?
(A) CIBIL
(B) SEBI
(C) RBI
(D) CRISIL
(E) IBA
Ans : (A)

37. Loans/advances to farmers is treated as—
(A) Personal Loans
(B) Priority Sector Loan
(C) Business Loan
(D) Corporate Loan
(E) None of these
Ans : (B)

38. Which one of the following Organisations maintains CRR ?
(A) RBI
(B) SEBI
(C) NABARD
(D) IBA
(E) None of these
Ans : (A)

39. When the loan is granted for purchase of white goods it is called—
(A) Consumption loan
(B) White goods loan
(C) Consumer durable loan
(D) All the above
(E) None of the above
Ans : (C)

40. Which one of the following is the objective of Mahatma Gandhi National Rural Employment Guarantee Act ?
(A) To provide 100 days employment to people in rural areas
(B) To provide employment to educated youth
(C) To provide employment under KVIC schemes
(D) To create more valuable rural assets
(E) None of these
Ans : (A)

41. Structure of Basel II is based on how many pillars ?
(A) Two
(B) Three
(C) Four
(D) Eight
(E) Six
Ans : (B)

42. With which one of the following ‘Channel Financing’ is associated ?
(A) Retail Lending
(B) Corporate Lending
(C) SME Lending
(D) Supply Chain Finance
(E) None of these
Ans : (D)

43. Expand the term FRBM—
(A) Financial Responsibility and Business Management
(B) Fiscal Responsibility and Business Management
(C) Financial Responsibility and Budget Management
(D) Fiscal Responsibility and Budget Management
(E) None of these
Ans : (D)

44. A customer can approach Banking ombudsman if he does not get satisfactory response to his grievance from the bank within how many days ?
(A) 10 days
(B) 20 days
(C) 8 days
(D) 30 days
(E) 60 days
Ans : (D)

45. Which one of the following country is in talks with EU and International Monetary Fund, to exit from debt crisis ?
(A) Spain
(B) Turkey
(C) Portugal
(D) Greece
(E) Finland
Ans : (D)

46. For achieving 8•5 percent GDP growth in fiscal 2010-11, which one of the following should be percent growth in farm sector ?
(A) 2•0
(B) 2•5
(C) 3•0
(D) 4•0
(E) None of these
Ans : (C)

47. According to a report submitted by IMF in its World Economic Outlook, which one of the following countries will have highest percent GDP growth rate in 2011 ?
(A) China
(B) India
(C) Brazil
(D) Russia
(E) None of these
Ans : (A)

48. Which one of the following has given ‘Aadhaar’ as its new brand name ?
(A) UIDAI
(B) Sports Ministry, GOI
(C) Ministry of Tourism, GOI
(D) NHAI
(E) None of these
Ans : (A)

49. Which of the following will help poor to come out of their poverty ?
1. Good Health Service
2. Freedom from illiteracy
3. Optimum Sex Ratio
(A) Only 1
(B) Only 2
(C) Only 1 and 2
(D) Only 3
(E) All 1, 2 and 3
Ans : (E)

50. Which one of the following is per cent Bank Rate ?
(A) 4.0
(B) 4.5
(C) 5
(D) 3.33
(E) None of these
Ans : (E)

Reserve Bank of India

It is the Central Bank of the country. The Reserve Bank of India was established in 1935 with a capital of Rs. 5 crore. This capital of Rs. 5 crore was divided into 5 lakh equity shares of 100 each. In the beginning the ownership of almost all the share capital was with the non-government share holders. In order to prevent the centralisation of equity shares in hand of a few people The Reserve Bank of India was nationalised on January 1, 1949.

The general administration and direction of RBI is managed by a Central Board of Directors consiting of 20 members which includes one Governor, four Deputy Governors, one Government Official appointed by the Union Government of India to give representation to important strata in economic life of the country besides four directors are nominated by the Union Government to represent local boards. Apart from the central board there are four local boards also and their head offices are situated in Mumbai, Chennai, Kolkata and New Delhi. Five members of local boards are appointed by the Union Government for a period of four years. The local boards work according to the instructions and orders given by Board of Directors, and from time to time they also tender useful advice on important matter. The office of RBI is in Mumbai. At present Dr. D. Subbarao is the Governor of Reserve Bank of India.

Functions of Reserve Bank of India

1. Issue of Notes - The Reserve Bank has the monopoly of note issue in the country it has the sole right to issue currency notes of various denominations except one rupees notes. The Reserve Bank act as a only source of legal tender money because the one rupee note issued by the Ministry of Finance are also circulated through it. The Reserve Bank has adopted the Minimum Reserve System for note issue. Since 1957, it maintains the gold and foreign reserve of Rs. 200 crore, of which at least Rs. 115 crore should be in gold.
2. Banker to the Government - The second important function of the Reserve Bank of India is to act as the banker, agent, and adviser to the Government. It performs all the banking functions of the State and the Central Government and it also tenders useful advice to the Government on matters related to economic and monetary policy. It also manages the public debt for the Government.
3. Bankers' Bank - The Reserve Bank performs the same function for the other banks ordinarily perform for their customers. It is not only banker to the commercial bank, but it is the lender of the last resort.
4. Controller of Credit - The Reserve Bank undertakes the responsibility of controlling credit created by the commercial banks. To achieve this objective it makes extensive use of quantitative and qualitative techniques to control and regulate the credit effectively in the country.
5. Custodian of Foreign Reserves - For the purpose of keeping the foreign exchange rates stable the Reserve Bank buy and sells the foreign currencies and also protect the country's foreign exchange funds.
6. Other Functions - The bank performs a number of other developmental works. These works include the function of clearing house arranging  credit for agriculture (which has been transferred to NABARD), collecting and publishing the economic data, buying and selling of Government Securities and Trade Bill, giving loans to the Government, buying and selling of valuable commodities etc. It also act as representative of Government in IMF and represents the membership of India.

Finance Commission

Financial Commission is constituted to define financial relations between the Center and the States. Under the provision of Article 280 of the constitution, the President appoints a Financial Commission for the specific purpose of devolution of non-plan revenues resources. The functions of the commission are to make recommendations to the President in respect of:

1. The distribution of net proceeds of taxes to be shared between the Union and the States and the allocation of share of such proceeds among the States.
2. The principles which should govern the payment of grant-in-aid by the Center to the States.
3. Any other matter concerning financial relations between the Center and the States.

In above context so far 11 Financial Commissions have been appointed which are as follows:

Finance Commission	Year of Establishment	Chairman	Operational Duration	Year of Submitting Report
I	1951	K.C.Niyogi	1952-1957	1952
II	1956	K. Santhanam	1957-1962	1956* and 1957
III	1960	A. K. Chanda	1962-1966	1961
IV	1964	P. V. Rajamannar	1966-1969	1965
V	1968	Mahavir Tyagi	1969-1974	1968* and 1969
VI	1972	Brahma Nand Reddy	1974-1979	1973
VII	1977	J. M. Shellet	1979-1984	1978
VIII	1983	Y.V. Chawan	1984-1989	1983* and 1984
IX	1987	N.K.P. Salve	1989-1995	1989
X	1992	K.C. Pant	1995-2000	Nov 26, 1994
XI	1998	A.M. Khusro	2000-2005	Jan 15, 2000*; July 7, 2000 and Aug 31, 2000
XII	2003	C. Rangarajan	2005-2010	Nov 30, 2004
XIII	2007	Vijay L. Kelkar	2010-2015	Constitued in Nov 2007

* Interim Report

All the above 11 Commissions have submitted their report in the year mentioned above. The recommendation of the various commissions can be divided in three heads

A. Division and distribution of income tax and other taxes.

B. Grants-in-aids

C. Loans to the state by the center

Financial Relations Between Union and States

Indian possesses a federal structure in which a clear distinction is made between the union and the state functions and sources of revenue. Our Constitution provides residual power to the Center. Article 264 and 293 explain the financial relations between the Union and State Government.

Although the states have been assigned certain taxes which are levied and collected by them, they also share in the revenue of certain union taxes which are levied and collected by the Central Government but whole proceeds are transferred to the states.

The Constitution makes a clear division of fiscal powers between the Center and the State Governments.

A. The List I of Seventh Schedule of Indian Constitution enlists the union taxes which are as follows:

1. Taxes on income other then agricultural income
2. Corporation tax
3. Custom duties
4. Excise duties except on alcoholic liquor and narcotics not obtained in medical or toilet preparation.
5. Estate and succession duties other than on agricultural land of individuals and companies.
6. Taxes on the capital value of assets except agricultural land of individuals and companies.
7. Rate of stamp duties on financial documents.
8. Taxes other than stamp duties on transaction of stock exchanges and future markets.
9. Taxes on sales or purchase of newspapers and on advertisement therein.
10. Thaxes on railway freight and fares.
11. Terminal taxes on goods or passengers carrier by railways, sea or air.
12. Taxes on sale or purchase of goods in the course of inter-state trade.

(B) List II of Seventh Schedule enlists the taxes which are within the jurisdiction of the states:

1. Land revenue
2. Taxes on the sale and purchase of goods, except newspapers
3. Taxes on agricultural income
4. Taxes on land and buildings
5. Succession and estate duties on agricultural land
6. Exercise on alcoholic liquors and narcotics
7. Taxes on the entry of goods into a local area
8. Taxes on the consumption and sale of electricity
9. Taxes on mineral rights (subject to any limitations imposed by the parliament)
10. Taxes on vehicles, animals and boats
11. Stamp duties except those on financial documents
12. Taxes on good and passengers carried by bond or inland waterways
13. Taxes on luxuries including entertainment, betting, and gambling
14. Tolls
15. Taxes on professions, trades, callings, and employment
16. Capitation taxation
17. Taxes on advertisements other than those contained in newspapers

(C) Apart from taxes levied and collected by states, the constitution has provided for the revenue of certain taxes on the union list to be allotted, partly or wholly to the state. These provisions fall into various catagories:

1. Duties which are levied by the union government but are collected and appropriated by by the states. These includes stamp duties, excise duties on medical preparations containing alcohol and narcotics.
2. Taxes which are levied and colleted by the union, but the entire proceeds of which are assigned to the States, in proportion determined by the Parliament. These taxes include:
   i) Succession and Estate duty.
   ii) Terminal taxes on goods and passengers
   iii) Taxes on railway freight and fares
   iv) Taxes on transactions in stock exchanges and future markets
   v) Taxes on sale and purchase of newspapers and advertisement therein.
3. Central taxes on income and union excise duties are levied and collected by the union but are shared by it with the states in a prescribed manner.
4. Proceeds of additional excise duty on mill made textile, sugar and tobacco which are levied by the union since 1957 in replacement of state sales taxes on these commodities, are wholly distributed among the states in a manner as to guarantee their former incomes from the displaced sales taxes.

National Income of India

According to National Income Committee (1945), "A national income estimates measures and volume of commodities and services turned out during a given period counted without duplication." Thus national income measures the net value of goods and services produced in a country during a year and it also includes net earned foreign income. In other words, a total of national income measures the flow of goods and services in economy. National income is a flow not a stock. As contrasted with national wealth which measures the stock of commodities held by nationals of a country at a point of time, national income measures the productivity power of an economy in a given period to turn out goods and services to final consumption.

In India, National income estimates are related with the financial year (April 1 - March 31).

Concept of National Income

The various concepts of national income are as follows -

1. Gross National Product (GNP) -  Gross National Product refers to the money value of total output or production of the final goods and services produced by the nationals of a country during a given period of time, generally a year.
   As we include all final goods and services, produced by nationals of the country during a year, in the calculations of GNP, we include money value of goods and services produced by nationals outside of country in calculating GNP. Hence, income produced and received by nationals of a country within the boundaries of foreign countries should be added in Gross Domestic Product (GDP) of the country. Similarly income received by foreign nationals within the boundary of country should be excluded from GDP.
   In equation form:
   GNP = GDP + X - M
   where,
   X = Income earned and received by the nationals within the boundaries of foreign country.
   M= Income received by the foreign nationals within the country.
   If X = M then GDP = GNP
   Similarly in closed economy X = M = 0 then also GDP = GNP
   Gross Domestic Product is the total money value of all final goods and services within the geographical boundaries of the country during a given period of time. As a conclusion it must be understood, while domestic product emphasises the total output which is raised within the geographical boundaries of the country, national product focuses attention not only on goods and services produced out side the boundaries of nation. Besides, any part of GDP which is produced by nationals of a country should be included in GNP.
2. Net National Product - NNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from GNP.
   In equation form: NNP = GNP - Depreciation
3. National Income - GNP, explained above, is based on market prices of produced goods which includes indirect taxes and subsidies. NNP can be calculated in two ways -
   i) at market prices of goods and services
   ii) at factor cost
   When NNP is obtained at factor cost, it is known as National Income. National Income is calculated by subtracting net indirect taxes (i.e. total indirect tax-subsidy) from NNP at market prices. The obtained value is known as NNP at factor cost or National Income.
   In equation form: 
   National Income or NNP at factor cost = NNP at Market Price - (Indirect Taxes - Subsidy)
   National Income = NNPMP - Indirect Tax + Subsidy
4. Personal Income - Personal income is that income which is actually obtained by subtracting corporate taxes and payments made for social securities provisions from national income and adding to it government transfer payment and net interest paid by the government.
   In equation form:
   Personal Income = National Income - undistributed profit of corporation - payment for social security provisions - corporate taxes + Government transfer payments + Business transfer payments + Net interest paid by Government
   It should always be kept in mind that National Income is a Flow Concept
5. Disposable Personal Income - When personal direct taxes are subtracted from personal income, the obtained value is called disposable personal income (DPI)
   In equation form: DPI = Personal Income - Direct Taxes

Securities and Exchange Board of India

Securities and Exchange Board of India (SEBI) was initially constituted on April 12, 1988 as a non-statutory body through a resolution of Government for dealing with all matters relating to development and regulation of securities market and investor protection and to advice the Government on all these matters. SEBI was given statutory status and powers through an ordinance promulgated on January 30, 1992.

The statutory powers and functions of SEBI were strengthened through the promulgation of the Securities Laws (Amendment) ordinance on January 25, 1995 which was subsequently replaced by an Act of Parliament. In terms of this Act, SEBI has been vested with regulatory powers over corporate in the issuance of capital, the transfer of securities, and other related matters. Besides, SEBI has also been empowered to impose monetary penalties on capital market intermediaries and other participants for a range of violation.

SEBI is managed by six members ~ one chairman (nominated by Central Government), two members (Officials of central ministries), one member from RBI, and remaining two members are also nominated by Central Government. The office of SEBI is situated in Mumbai with its regional offices in Kolkata, Delhi and Channai. In 1988 the initial capital of SEBI was 7.5 crore which was provided by its promoters (IDBI, ICICI, and IFCI). This amount was invested and its its interest amount day-to-day expenses of SEBI are met.

All statutory powers for regulating Indian capital market are vested with SEBI itself.

Functions of SEBI

1. To safeguard the interests of investors and to regulate capital market with suitable measures.
2. To regulate the business of stock exchanges and other securities market.
3. To regulate the working Stock Brokers, Sub-brokers, Share Transfer Agents, Trustees, Merchant Bankers, Underwriters, Portfolio Managers etc and also to make their registration.
4. To register and regulate collective investment plans of mutual funds.
5. To encourage self-regulatory organisation.
6. To eliminate malpractices of security markets.
7. To train the persons associated with security markets and also to encourage investors' education.
8. To check inside trading of securities.
9. To supervise the working of various organisations trading in security market and also to ensure systematic dealing.
10. To promote research and investigations for ensuring the attainment of above objectives.

Special Economic Zone Act, 2005

As a major step forward meant to instill confidence in investors and signal the government's commitment to a stable SEZ policy regime, a comprehensive Special Economic Zone Act, 2005 was passed by the parliament in May 2005. It received Presidential award on the 23rd of June 2005. This Act came into force w.e.f. February 10, 2006.

The salient features of SEZs Act are:

• Exemption from custom duty, exercise duty etc. on import/ domestic procurement of goods for the development, operation and maintenance of SEZs and the units therein.
• 100% income tax exemption for 5 years, 50% for next five years and 50% of ploughed back export profits for 5 years thereafter for SEZs unit.
• Exemption from capital gains on transfer of an undertaking from an urban area to SEZs.
• 100% income tax exemption to SEZ developers for a block of 10 years in 15 years.
• Exemption from dividend distribution tax to SEZ developers.
• 100% income tax exemption for 5 years and 50% for next 5 years for off shore banking unit located in SEZ.
• Exemption to SEZ developers and units from Minimum Alternate Tax.
• CST exemption to SEZ developers and units on inter-state purchase of goods.
• Constitution of an authority for each SEZ with a view to providing greater administration financial and functional autonomy to these zones.
• Establishment of designated courts and a state enforcement agency to ensure speedy trial and investigation of offences committed in SEZs.
• Encouragement to State Government to liberalise State laws and delegate their power to the Development Commissioners to the SEZs to facilitate single window clearance.

Narasimham Committee Recommendations on Financial Reforms

The Government of India constituted a nine member committee under the chairmanship of Mr. M. Narasimham, retired RBI Governor, on August 14, 1991 for making recommendations on existing financial system and to give suggestions for improving the existing structure. The committee submitted its report to the Finance Minister in November 1991 which was placed on the table of Parliament on December 17, 1991. 

The salient recommendations are:

1. Four tier Banking System should be introduced in the country
   I tier 3 or 4 International Banks
   II tier 8 to 10 National Banks
   III tier Regional Banks
   IV tier Rural Banks
2. Branch licensing system for opening new bank branches should be abolished.
3. A liberal view should be adopted for allowing foreign banks in the country. Both domestic and foreign banks should be treated at par.
4. SLR for banks should be curtailed to the level of 25% within next 5 years. CRR should also be curtailed in various phases.
5. Banks should be given more autonomy and the directed credit should be abolished.
6. Primary targets for credit should be redefined and such credits should not be more than 10% of total credit.
7. Computerisation in banks should be promoted.
8. Banks should be authorised to appoint banking officials at their own discretion.
9. The duel control RBI and Finance Ministry on banks should be abolished and RBI should function only as a regulatory authority of banking system in the economy.
10. RBI's representative should not be included in the management board of banks. Only Government representative should be there.
11. Granting resources to development finance institutions on concessional rates of interest should be abolished in phases within next three years. These institutions should be allowed to mobilise resources from open market on competitive rates.
12. Quick and effective liberal attitude should be adopted in the policy related to capital market. System of getting prior permission by the companies for their new share issues should be abolished.

National Development Council

National Development Council (NDC) is a non-statutory body which was constituted to build co-operation between States and Planning Commission for economic planning. The National Development Council was constituted on August 6, 1952, by a proposal of the Government. The Prime Minister is the Chairman and Secretary of the Planning Commission remains its secretary. In the beginning, only the Chief Ministers of the States were its members, but after 1967 all the Ministers of Central Cabinet, Administrators of the state ruled by the Center and all the members of Planning Commission were Included as members of this body.

The National Development Council is an important organisation, whose main functions are as follows:

1. To evaluate the implementation of National Planning from time to time.
2. To examine the social and economic policies that influence the economic development
3. To give suggestions in the order to achieve maximum co-operation of the people, improve administrative efficiency, suggest necessary measures for the developments of under-developed and backward classed and also to mobilise resources for national development.
4. To study the plan preparation by the Planning Commission and after mutual discussions give it the final shape. It is only after its ratification that the format of the plan is published.

Method of National Plan Formulation

The Plan has to go through various stages in order to reach its final form. About 2-3 years before the implementation of the Plan, the discussions on the targets and programs of the plan begins. The Planning Commission collects the data of national product, national consumption, availability of resources, national investment and saving for the future plan and it prepares micro and macro plans, keeping in view their allocation arrangements. Thereafter, these plans along with the data sent to the National Development Council. The NDC again sends it back to Planning Commission with or without any amendment. On this basis, the ministries of Center and State Governments are asked to prepare their projects. The Planning Commission obtains suggestion from a panel of experts operating in various sectors. On the basis of the requisites of the plan obtained from different ministries and opinion of the different specialists, the Planning Commission prepares a draft memorandum of the plan, in which all the policies and important details of the plan are laid down. This draft memorandum is sent to central cabinet for discussion. After assessment, the central cabinet sends it to National Development Council along with its suggestions. The NDC again sends it to Planning Commission with its suggestions. The Planning Commission prepares a draft outline of the objective and programs of the plan, keeping in view the draft memorandum and suggestions given by the Cabinet and NDC. This outline is sent to the various State Governments and Central ministries. It is published after receiving acceptance from the NDC. This published format along with the reactions and suggestions of the experts is again sent to the Central Cabinet and National Development Council. The approved format is laid down in its final form, which is presented to the Lok Sabha for discussion. After getting it ratified by the parliament the government implements the Plan.

History of Planning Commission in India

In India the planned economic development began in 1951 with the inception of First Five Year Plan. The theoretical efforts for economic development in Indian economy had already begun before independence. In the year 1934, Sir M. Visheshvaraya wrote a book named 'Planned Economy of India', which was the first attempt in this direction. In 1938, the Indian National Congress, under the leadership of Pt. Jawaharlal Nehru, made a National Planning Committee. Its recommendations could not be implemented due to the beginning of the Second World War and and changes in the Indian Political Situation. In 1944, eight industrialists of Bombay presented well organised plan called "The Bombay Plan", which could not be brought into action due to various reasons. In August 1944, the Indian Government inaugurated separate department called 'The Planning and Development Department' and appointed Sir Ardishar Dalal, the controller of Bombay Plan, as its acting member. 

Inspired by the economic views of Mahatma Gandhi, Shri Sriman Narayan constructed a plan in 1944 which is known as 'Gandhian Plan'. Mr. M. N. Rao, the Chairman of post-war Reconstruction Committee of Indian Trade Union, introduced a 'People's Plan' in April 1945. This plan introduced before independence again could not be implemented due to various reasons. In 1946, the Interim Government was formed in India. This Government established a High Level Advisory Planning Board in order to study the problems of planning and development in the country. The Board studied all the problems very deeply and gave recommendation to establish a stable planning commission at the central level which could continuously work for the planning and development of the country. In January 1950, Shri Jaiprakash Narayan published a plan called 'Sarvodaya Plan'. The Government did not accept the entire plan and adopted only a part of it. The Planning Commission was constituted on 15th March, 1950, by the Government of India.

Until now ten five years plan and seven annual plans have been completed. Eleventh Plan (2007-12) which was finally approved by NDC on December 19, 2007 is in operation w.e.f. April 1, 2007.

Planning Commission of India

There is no account of Planning Commission in the Indian Constitution. Therefore, it was constituted in the form of an advisory and specialised institution by means of a document of Government. Consequently the Government has been changing its nature and organisation from time to time. 

The Prime Minister Pt. Jawaharlal Nehru was appointed the first Chairman of Planning Commission, 5 full time members were also nominated. The ministers and scholars have been nominated in this commission from time to time, the Prime Minister remains its ex-officio Chairman. The tenure of its members and Vice Chairman is not fixed. There is no definite qualification for its members. The members are appointed by Government on its own discretion. The number of its members keep on changing according to the wish of the Government.

Functions of the Planning Commission

1. To estimate the physical, capital and human resources of the country.
2. To prepare plan for making effective and balanced utilisation of human resource.
3. To determine the various stages of planning and to propose the allocation of resources on the priority basis.
4. To indicate those factors to the Government which prove an obstacle in the economic development and also to determine those circumstances which are necessary for the implementation of the plans under existing social and political situation.
5. To evaluate from time to time the progress achieved in every stage of plan and also to suggest remedial measures.
6. To advice the Centre and the State Government on special matters referred to the commission.