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Banking in India originated in the last decades of the 18th century. The first
banks were The General Bank of India, which started in 1786, and Bank of Hindustan,
which started in 1790; both are now defunct. The oldest bank in existence in India is the
State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost
immediately became the Bank of Bengal. This was one of the three presidency banks,
the other two being the Bank of Bombay and the Bank of Madras, all three of which
were established under charters from the British East India Company. For many years
the Presidency banks acted as quasi-central banks, as did their successors. The three
banks merged in 1921 to form the Imperial Bank of India, which, upon India's
independence, became the State Bank of India.
Finance in India
The Indian money market is classified into: the organised sector (comprising private,
public and foreign owned commercial banks and cooperative banks, together known
as scheduled banks); and the unorganised sector (comprising individual or family
owned indigenous bankers or money lenders and non-banking financial
companies (NBFCs)). The unorganised sector and microcredit are still preferred over
traditional banks in rural and sub-urban areas, especially for non-productive purposes,
like ceremonies and short duration loans.
As of 2007, banking in India is generally mature in terms of supply, product range and
reach-even, though reach in rural India still remains a challenge for the private sector
and foreign banks.[7] In terms of quality of assets and capital adequacy, Indian banks
are considered to have clean, strong and transparent balance sheets relative to other
banks in comparable economies of Asia.[7] The Reserve Bank of India is an autonomous
body, with minimal pressure from the government. The stated policy of the Bank on
the Indian Rupee is to manage volatility but without any fixed exchange rate. [8]
The road transport sector has been declared a priority and will have
access to loans at favorable conditions. The Monopoly and Restrictive
Trade Practices Act (MRTP Act) was passed in order to encourage
large industry to enter the road sector.
The National Highways Act has been modified to help the reduction
of tolls on national motorways, bridges and tunnels. Calcutta's
Howrah Bridge is the world's busiest with a daily flow of 57,000
vehicles and innumerable pedestrians. Private participation in the
energy sector has been encouraged with the reduction of import
duties, a five-year tax exemption for new energy projects and a 16%
return on equity.
The State Bank of India acts as an agent of the Reserve Bank of India and performs the
following functions:
(1) Borrows money:- The Bank borrows money from the public by accepting deposits such as
current account deposits, fixed deposits and savings deposits.
(2) Lends money:- It lends money to merchants and manufacturers for short periods. It also
lends to farmers and co-operative institutions. It lends mostly on the security of easily realizable
commodities like rice, wheat, cotton, oil-seeds, cloth, gold and government securities. The Bank
can lend against agricultural bills upto a maximum period of fifteen months and incase of other
bills upto a maximum period of six months.
(3) Government’s Bank:- The State Bank of India also acts as the agent of the Reserve Bank
of India. As an agent, the State Bank of India maintains the treasuries of the State Government.
The Bank also manages the debts floated by the State Governments.
(4) Remittance:- The State Bank of India facilitates remittance of money from one place to
another. It also helps in the transfer on the funds of the State and Central Government.
Regional Rural banks (RRB) were created to provide the sufficient institutional credit for
agriculture to the rural areas of a state. The function of RRB is
i) Primary functions:
a) Accepting deposits
deposits from the public. People who have surplus income and
bank also earn interest. Thus, deposits with the bank grow along
are motivated to deposit more funds with the bank. There is also
and the rate charged on the Loans is the main source of a bank’s
income.
i) Loans
commercial banks grant short-term loans. But term loans,Functions of Commercial Banks :: 23
that is, loan for more than a year, may also be granted.
lumpsum or in instalments.
ii) Advances
b) Overdraft
or both.
c) Discounting of Bills
making payment of the amount before the due date of the bills
case any bill is dishonoured on the due date, the bank can recover
DEVELOPMENT ECONOMICS
Nurkse, Ragnar (1907–1959) An economist whose work examined and sought solutions for the vicious circle
of poverty in underdeveloped countries, which he viewed as linked to insufficient investment. Nurkse
contended that investment is subject to external economies of scale—that is, the more investment there is, the
more profitable further investment becomes. Contrary to neoclassical claims, Nurske argued that poor
countries might never follow the development path of the industrialized countries because they might never
attract enough capital to fuel the development cycle. The gap between rich and poor countries, in this case,
would only …
On the side of demand when people have low real income the demand for goods is bound to be
small. In the small size of market, there is no incentive of invest in real or human capital. When the
rate of investment is low, the productivity of the factors of production is bound to be low. Low
productivity leads to low per capital income which is rapidly absorbed by the rising population
growth. The country, therefore, remained poor.
Lower per capita incomes make it extremely difficult for poor nations to save and invest, a condition
that perpetuates low productivity and low incomes. Furthermore, rapid population growth may
quickly absorb increases in per capita real income and thereby may negate the possibility of
breaking out of the underdevelopment circle.
(1) Increase in savings. The vicious of circle of poverty can be broken by making serious efforts in
increasing the volume of real savings both at the level of in development the govt. The govt. can also
mobilize foreign savings for capital formation country.
(2) Higher per capital growth rate. The per capital growth rate should be higher than the rate of
growth of population. This objective be achieved by increasing the level of employment in the
country and reducing the rate of population growth. If the rate of increase in real per capital income
is the same as the rate of growth of population, the real income per person will remain unchanged.
(3) Efficient use of natural resources. The less developed countries (LDC) are not making the
efficient use of the natural resources available to them. At present the multi national companies
(MNCs) of the advanced countries are exploiting these resources more for their own economic
benefits. The economic advantages of the natural resources must pass on to the benefits of the poor
masses of the LDCs.
(4) Employment of human resources. Many of the less developing countries including Pakistan
are faced with serious unemployment problem. The quality of labour force is also poor. The low level
of literacy, malnutrition, absence of proper medical care etc are all barriers to economic development
Effective measures have to be taken for sufficient investment in human capital to break the poverty
barrier of the LDCs.
(5) Increasing the stock of capital goods. The LDCs can come out of the vicious circle pf poverty
if the wealthy class is motivated to make their savings available for investment in productive
activates rather than using their wealth on the purchase of urban real estates, precious metals etc.
(6) Technological advance. The people in less developed countries (LDCs) can break the poverty
barrier by adopting and applying advance technologies which are appropriate to the resources
available to them.
(7) Role of the advanced nations. The advanced nations san help the less developed countries in
breaking the poverty barrier by:
(i) expanding volume of trade with them.
(ii) increasing the flow of private and public capital in basic infrastructure.
(iii) provision of direct aid in basic social sectors such as education, health etc.
(8) Role for the government. The government in the less developed country is in the key position
to deal effectively with social institutional obstacles to growth and breaking out the vicious circle of
poverty. It can greatly root out political corruption and bribery. It can provide incentives to save and
invest. It can increase agricultural production by introducing effective land reforms in the country’s…
That is called the vicious circle of poverty, which illustrates that the poor counties will remain poor if
not poorer, while rich countries will grow even richer following the same circle. This essay will analyze the two types
of countries, more specifically, the rich ones—the developed countries—such as the US and the European countries
and the poor ones—the developing countries like China, India and most of the African countries. It will also examine
how they function differently during the process of accumulating capital and grow. Further, this essay will explore
ways as well as evaluating their feasibility for developing countries to break the vicious circle of poverty. Finally, this
essay will draw some conclusion based on the overall analysis and give suggestions for the sustainable development
of developing countries.
Second, apply the same model to the two different types of countries—developed and developing counties, and
compare the choices by them. The two major differences between the two types of countries are the resources and
technology. More often than not, developed countries are always having both more resources and much better
technology than their developing counterparts. As a result, a developed country's PPF curve will be much larger
relative to its population. Graphic 2 illustrates the comparison of two countries, one developed and one developing,
which both have similar population. As shown in the graphic, the developing country has a much smaller PPF curve
than the developed country, which reflects its fewer resources and lower level of technology. What is worse, in the
real cases, developing countries are always having much greater number of people as well as greater population
growth rates.
Third, consider the relationship between investment and consumption and see how it works differently in developed
and developing countries. Assume the replacement level of investment represents the threshold level of investment
(Ir as shown in figure 3)—the level of production that would just exactly replace the capital is worn out in the current
period. Similarly, assume the subsistence level of consumption (Cs as shown in figure 3) equals that level of the
production of consumption goods just sufficient to feed a country’s population without starvation.
As seen from figure 3, the developed country has the ability to both feed its population at or above the substance
level, and at the meantime, replace or expand its stock of capital. For example, the country can choose its production
pattern on the PPF curve where shaded. In this area, it can feed its population and expand its production possibilities
in the future.
While people in the developing country are living so close to subsistence levels and the country is lack of savings. So
the choice for it becomes an “either or” question. It can choose between either feeding its population or expanding its
production possibilities. Unfortunately, it cannot do both as in the shaded area, which is obviously beyond its
production limit.
Finally, figure 4 illustrates how the vicious circle of poverty comes into being. If the developing country, for instance,
decides to feed its population at the expenses of replacing worn out capital, the country must produce less than the
replacement level of investment. As a result, in the future its production ability will further decrease and its PPF curve
will shift back, making the decision even worse. At that moment, feeding its population would require an even lower
level of production for capital goods, which will in turn lead to an even more serve shift back in its PPF curve.
Consequently, if the country continues to choose to feed its population, the PPF curve will shift back to a point that it
will be unable to either replace its capital or feed its population. Figure 4 illustrates these sequences by the
movement over time from production possibility frontier P0 to production possibility frontier P1 and P2.
First of all, one of the solutions is for the developing country to decide to set its production of investment at more than
the replacement level (that is higher than Ir shown in figure 3). From the perspective of the future, this choice has two
advantages. First, it will expand the country's PPF curve in the future (rightward to the new Ir level), reducing the
poverty problem in the future. In fact, eventually the PPF will shift out enough so that the developing country will
eventually be able to both feed its population and expand its production possibilities in the future (Goff, 2003).
Second, choosing to allow some of their population to starve will also move the country in the direction of being able
to both feed its population and increase its PPF curve. Although it is not the ideal choice for a county, it is the only
internal choice that may result in fewest deaths and the most future productive growth. This is true because some
people will die through starvation, presumably those who are least productive. In the future, since the population is
lower, the subsistence level of consumption will fall. Because it is the least productive who will starve, their deaths will
not have a large adverse effect upon the PPF curve.
Finally, there is another more palatable solution exists, which is through foreign investment into developing countries.
The vicious circle of poverty can be avoided if the country either has more resources or better technology. Foreign aid
from developed countries can give developing countries either or both of these, allowing them to avoid the
unpalatable choices discussed above and increase their PPF curves outward. Moreover, helping a developing
country develop will also develop markets for the goods and services from developed countries, gaining economic
benefits for them (World Bank, 2006).
Conclusion
From the analysis above, the economic growth and development refer to the expansion of economic choices, i.e.,
rightward or outward shifts in the PPF. For poor countries, there are limited resources and inferior technology, it is
difficult for them to accumulate capital and grow.
While poor countries cannot afford to divert resources away from the production of consumption goods, they can
escape from this situation with additional investment in capital from foreign aid. In absence of foreign investment,
poor countries can also set its investment threshold higher than necessary or sacrifice few people in exchange of the
sustainability of its economy, though not that favorable.
Solutions of Poverty
It is difficult to found any ready made solution for poverty. There is no universal formula that can be practically
implemented in all parts of world. History proves this fact that every country who achieved good economic condition
has tailored its route. For defining best tool to eliminate poverty form some country it is important to find out the root
cause of poverty thenstart form addressing there onward there are brighter chances to get rid.
Poverty and financial happiness is to opponent extremes, so the best possible way to overcome poverty is creating
ways for self sufficiency. Health and education are the basic solution which can work in all conditions. According the
geographical and demographic conditions there could be customized solution. For example in Asian developing
countries like Pakistan there is great opportunity to start working on agriculture. For this purpose there should be
implementation of best methods to increase production of agricultural products and sell them to rest of the world to
earn foreign exchange. Basic health facilities, Quality education, consistent and good political infrastructure, better
management system, control over corruption and correction of balance of payments are some basic issues which are
likely to be addressed on priority bases to get rid of vicious circle of poverty….
United Progressive Alliance [UPA] President Sonia Gandhi to brainstorm on flaws existing in the
scheme and it is time to move in new directions. Sonia said it plans to construct jobs for rustic people
has been very successful, particularly for weaker sections and women. But the devise also complaints
of irregularities and corruption is. He plans to analyze the gaps existing in the implementation,
preparing new directions and an possibility to move forward.
Manmohan Singh said a gargantuan collection of beneficiaries of Manarega Scheduled Castes,
Scheduled Tribes and women’s. The scheme has proven to be capable to strengthen the rustic
economy. Singh said the devise to erase poverty to fulfill the dream of Mahatma Gandhi, the UPA
government is a big step.