Major Recommendations of Rajan Committee on Financial Sector Reforms

The Raghuram Rajan committee on financial reforms was a committee constituted by the government of India in 2007. It was chaired by Raghuram Rajan, an economist at the University of Chicago. He was previously a chief economist at the International Monetary fund. Raghuram Rajan committee report titled ‘The Hundred steps’ proposed reforms in the financial sector, believing that one must take small steps in the same direction that taking a few big and disputed steps. Rajan committee undertook nine formal and eleven informal meetings. In addition, the committee members met with several committee members to put together a report.

The Terms of Reference

The terms of reference for the Raghuram Rajan Committee on financial reforms were to identify the emerging challenges to meet the financing needs of the Indian economy in the coming decade and to identify real sector reforms that would allow those needs to be more easily met by the financial sector. It was also to examine the performance of various segments of the financial sector and identify changes that will allow it to meet the needs of the real sector. It was to identify changes in the regulatory and the supervisory infrastructure that can better allow the financial sector to play its role while ensuring that risks were contained and identify changes in other areas of the economy, including in the conduct of monetary and fiscal policy, and the operation of the legal system and the educational system that could help the financial sector function more effectively.

Rajan Committee Report

The plan of the Raghuram Rajan committee was the need at the time, as it addresses financial inclusion and domestic financial development, but this also meant that the political challenges of this report were more extensive. The underlying theme of this report was the need to enhance inclusion, growth, and stability by allowing players more freedom, even while strengthening the financial and regulatory infrastructure.

 It gave proposals on the following:

• Macroeconomic and Financial development
• Broadening Access to finance
• Levelling the playing field
• Creating more efficient and liquid markets
• A growth-friendly regulatory framework
• Creating a robust infrastructure for credit

The macroeconomics frameworks were the most disputed and likely to be the most challenging to implement. Inflation targeting and float exchange rate were very far from that practice. The current approach for the market is very different. The report provides a direct and simple way in this area. It encourages the introduction of the missing markets, stopping the creation of investor uncertainty in banned markets, encourages the setup of financial markets and exchanges between products and investors. It also helped create a more friendly environment by decreasing the time needed for approval of new financial products. The report has several recommendations for modifying the current regulatory architecture to improve the coordination, coverage and quality. The key idea for it is the reduction of micromanagement. Certainly, structural change may help increase incentives, but there is a danger of getting bogged in new institutions or making legislative changes. An improved credit structure will better inform, educate, and protect small participants in the financial market. Doing all this will not automatically increase financial inclusion, but it will be the beginning of the modern financial sector. The positive approach to this Raghuram Rajan Report is that these changes show more potential for change in the future.

Conclusion

Raghuram Rajan made many contributions in the finance and economy sector. Raghuram Rajan committee was given the mandate to look for an overall view in the finance sector in making recommendations, highlighting links between needed reforms while offering a consistent underlying approach. The real sectors were the need of the hour at that time. It focussed on making the bank’s more efficient by making small burdens on the public sector banks, improving the technology sector and consolidating. Hoping this gives you an overview of the Raghuram Rajan financial committee on the financial reforms working and report.