Growth of Indian Money market | Steps taken by Government

Steps taken by Government for the Growth of Indian Money Market

The Government has taken various steps for the growth of Indian money market. Smooth function of a money market is one of the reason for the growth of any economy. A few of the steps are given below.

Growth of Indian money market1. Nationalization of commercial banks to boost money market in India

Commercial banks were nationalized in order to stimulate the growth of Indian money market. The nationalization enabled banking sector to provide more loans to agriculture and discount agricultural bills.

2. Introduction of various relief acts to boost up growth of Indian money market

The passing of Public Debt Relief Act has released many people, especially in rural areas from the clutches of the money lenders. The Urban Debt Relief Act has given relief to the urban poor. In 1988, the discount and finance house was set up for discounting commercial bills brought by commercial banks.

3. Reduction of stamp duty

Reduction of stamp duty and re-discounting rate on promissory notes has made it more popular. In 1986, the Government issued 180-days treasury bills and in 1989 certificate of deposits, and commercial paper in 1990.

In 1991, Money Market Mutual fund was set up to allow more people to take part in the money market activities in India.

4. Steps taken to curb disparity in Interest rates

The interest rate of commercial banks which was controlled by RBI has been deregulated. This curtails the adverse effect of disparity in Interest rates among various money markets and in turn helps boost up the growth of Indian money market.

5. Repurchase of options of treasury bills to boost bill market

RBI has introduced repurchase of options of treasury bills to provide more additional funds to commercial banks. This attracts more activity in the bill market and help boost money market in India.

6. Relaxation fore foreign institutions by Indian Government

More relaxation for foreign institutions to invest foreign funds in the Indian money market. This brings in more liquidity during the period of busy season (between June to February).

7. Introduction of Credit rating for commercial paper and promissory notes

Credit rating has been introduced for promissory notes as well as commercial paper by which the credibility of these instruments has gone up. Credit worthiness of these instrument plays a major role for the growth of Indian money market.

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