Introduction to Indian Financial System

The Indian financial system refers to the network of institutions, markets, and instruments that facilitate the flow of funds and credit in the country. It plays a crucial role in mobilizing savings, allocating resources, and facilitating economic growth. The financial system in India has evolved over the years and has undergone significant changes, especially on the eve of planning.

Key Components of Indian Financial System
1. Financial Institutions: The financial system in India comprises various institutions such as commercial banks, cooperative banks, development banks, non-banking financial companies (NBFCs), insurance companies, and mutual funds. These institutions provide financial services, including deposit-taking, lending, investment, and risk management.

2. Financial Markets: Indian financial markets consist of various segments, including the money market, capital market, and forex market. The money market deals with short-term borrowing and lending of funds, while the capital market facilitates the trading of long-term securities such as stocks and bonds. The forex market allows the exchange of different currencies.

3. Financial Instruments: There are several financial instruments available in the Indian financial system, such as stocks, bonds, debentures, derivatives, mutual fund units, insurance policies, and various types of loans and deposits. These instruments serve as vehicles for raising funds and investing.

4. Regulatory Bodies: To ensure the smooth functioning and stability of the financial system, India has established regulatory bodies like the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), and Pension Fund Regulatory and Development Authority (PFRDA). These bodies regulate and supervise the activities of financial institutions and markets.

Changes on the Eve of Planning
On the eve of planning, the Indian financial system underwent significant changes to support the planned economic development. Some of the key changes include:

1. Nationalization of Banks: In 1969, the government nationalized 14 major commercial banks to promote financial inclusion, increase credit flow to priority sectors, and ensure social control over the banking sector.

2. Development of Financial Institutions: Development banks like Industrial Development Bank of India (IDBI) and Industrial Finance Corporation of India (IFCI) were established to provide long-term finance for industrial development.

3. Reforms in Capital Markets: The establishment of the Securities and Exchange Board of India (SEBI) in 1988 and the introduction of reforms like dematerialization, online trading, and investor protection measures boosted the efficiency and transparency of capital markets.

4. Liberalization and Globalization: The 1991 economic reforms opened up the Indian economy to foreign investments and liberalized various sectors, including the financial sector. This led to the entry of foreign banks, insurance companies, and mutual funds, increasing competition and expanding the range of financial services.

5. Technology and Digitalization: The advent of technology and digitalization has revolutionized the Indian financial system. Online banking, mobile wallets, and digital payment platforms have made financial services more accessible and convenient for individuals and businesses.

Overall, the Indian financial system on the eve of planning witnessed significant changes aimed at promoting economic development, financial stability, and inclusivity. These changes have