Why is the Indian Money Market Underdeveloped

Why is the Indian Money Market Underdeveloped

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The features of the Indian Money Market that indicate its underdeveloped nature are as follows:

(i) The Indian money market lacks a sophisticated and suitably established banking infrastructure.

(ii) It does not have an adequate and consistent supply of short-term financial instruments that include bills of exchange, T-bills, temporary government bonds, and so on.

(iii) There is no homogeneity in interest rates, which vary significantly between financial institutions and locations.

(iv) There are no short-term asset dealers in the Indian Money Market who may act as middlemen involving the government and the banking sector.

(v) While India has a well-developed call Money Market, it lacks other important sub-markets like as the acceptability Market, commercial Bill Market, and so on.

(vi) There is insufficient coordination between every facet of the Money Market.

(vii) Because the Indian Money Market is unable to draw foreign capital, it lacks worldwide recognition.

(viii) Inadequate banking system with lack of control by Central Bank in India - Prior to 1955, the commercial banks had contributed hardly 3% of the rural credit, while 70% of it was met by the money lenders. The co-operative sector had contributed only 3.5%. There were not many branches of commercial banks being opened in rural areas prior to 1970. Hence, the mobilization of deposit by the organized sector was limited. The traders and businessmen were given their credit requirements by indigenous bankers. All the efforts taken by RBI to curtail the operations of money lenders and indigenous bankers proved futile. Hence, more funds were given for speculative and nonproductive purposes and the price level could not be controlled effectively by RBI.

Measures to Improve the Indian Currency Market: The following proposals are important in the overall scheme of correcting flaws in the Indian currency:

(i) The operations of indigenous banks ought to become effectively controlled by the Reserve Bank of India.

(ii) Hundis employed in the Money Market need to be regulated and written uniformly in order to build an all-India Money Market.

(iii) Banking facilities ought to increase, particularly in underserved and neglected regions.

(iv) Discounting as well as the re-discounting facilities must be further developed in order to grow the country's bill market.

(v) In order to improve the productivity of the money market, the total amount of clearing houses in the nation should be raised and their operations should be improved.

(vi) Appropriate and less expensive remittances facilities should be made available to businessmen in order to improve capital mobility.

(vii) Interest rate fluctuations should be minimised.