chakravarthy commite

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%