2. S Chakravarty committee was formed in
1985 under the chairmanship of professor
sukhamoy Chakravarty
The committee was set up to review the
working of monetary system in India
Its goal was to improve monitary regulation.
a feat that was hoped would enables price
stability
The committee submitted its report in April
1985
3. During 1970 to 1980 the Indian economy
had numerous issues relating to the
functioning of monetary system
Increase in the credit from the reserve bank
of India to the government
Increase in the statutory liquidity ratio
maintained by the banks
4. Background
As chakravarthy himself stated “ from the point of
view of entering non inflationary planned
development in the years to come ’’
monitory targeting
The committee stated that average rate of interest does
not increases not more than 4% per year in the sole
price index
How ever annual inflation was 8% , 9% , and 10% ,
during 1970 ,1990, and 1990
No rigidity in the monetary policy
5. Some of the drawbacks flexibility interest rates in
chakravarthy committee
Significant relaxation interest rate
Encourages too much monetization of government
debt
Discourages effective use of credit by borrowers'
Reduces profitability of banks and other financial
institutions
Interest rate calculation formula under chakravarthy
committee
i= r ( real rate of int + Pe ( pennal int )
6. Recommendations by committee
A)Interest rate on government securities
In this we can see 90% of them are tressury bills
30% of them are maturity bonds
The fixed rate of interest 4.6% and from 1983 onwards
government security demand declined
B) Deposite rates of bank
1) deposite period more then 5 years
Int = pe + r not less then 2%
2) One year deposite
Int =one year pe + reasonable ( r )
7. 3) if deposite between 1 to 5 years
Int = pe + r more then 2%
