Directions : Given below is a passage. Read it carefully and wer the questions give below it. The initiation of financial reforms in the country during the early 1990s was to a large extent conditioned by the analysis and recommendations of various Committees/Working Groups set up to address specific issues. The process has been marked by gradualism with measures being undertaken after extensive consultations with expert and market participants. From the beginning of financial reforms, India has resolved to attain standards of international best practices but to finetune the process keeping in view the underlying institutional and operational considerations. Reform measures introduced across sectors as well as within each sector were planned in such a way so as to reinforce each other. Attempts were made to simultaneously strengthen the institutional framework while enhancing the scope for commercial decision-making and market forces in an increasingly competitive framework. At the same time, the process did not lose sight of the social responsibilities of the financial sector. However, for fulfilling such objectives, rather than using administrative fiat or coercion, attempts were made to provide operational flexibility and incentives so that the desired ends are attended through interplay of market forces.

The major aim of the reforms in the early phase of reforms, known as first generation of reforms, was to create an efficient, productive and profitable financial service industry operating within the environment of operating flexibility and functional autonomy. While these reforms were being implemented, the world economy also witnessed significant changes, coinciding with the movement towards global integration of financial services. The focus of the second phase of financial sector reforms starting from the second-half of the 1990s, therefore, has been the strengthening of the financial system and introduction of structural improvements.

Two brief points need to be mentioned here. First, financial reforms in the early 1990s were preceded by measures aimed at lessening the extent of financial repression. However, unlike in the latter period, the earlier efforts were not part of a wellthought out and comprehensive agenda for extensive reforms. Second, financial sector reform in India was an important component of the comprehensive economic reform process initiated in the early 1990s. Whereas economic reforms in India were also initiated following an external sector crisis, unlike many other emerging market economies where economic reforms were driven by crisis followed by a boom-bust pattern of policy liberalization, in India, reforms followed a consensus-driven pattern of sequenced liberalization across the sector. That is why, despite several changes in government there has not been any reversal of direction in the financial sector reform process over the last 15 years.