July 17, 2019

The 1969 bank nationalization did India more harm than good

In Mint, Niranjan Rajadhyaksha writes on the 1969 Bank Nationalisation Act and its impact on the Indian economy. Excerpts:


"India was at a crossroads. Many other countries in Asia had switched to more market-oriented policies in the preceding years, even within the overall industrial policy framework. Their growth would accelerate over the next two decades. In India, there had been some tentative moves in that direction during the short tenure of Lal Bahadur Shastri. However, Indira Gandhi swung the other way with the support of the Left. Bank nationalization was one of her responses to the economic and political challenges of the time.


The impact of bank nationalization can be thought about in terms of three core areas: deposits, lending and interest rates. The one positive impact of bank nationalization was that financial savings rose as lenders opened new branches in areas that were unbanked. Gross domestic savings almost doubled as a percentage of national income in the 1970s. A growing part of this was sucked up by the government itself through increases in the statutory liquidity ratio. P.N. Dhar writes in his memoirs that V.K. Krishna Menon made the startling claim in a private meeting with top officials before nationalization that the government would not have to worry about mobilizing funds once banks were nationalized..."


Read the whole article here.

Topic : State Capacity / In : OP-EDS
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