The Chakravarty Committee was formed in 1985 to assess and improve India's monetary system. The committee recommended monetary targeting to help achieve price stability, which it saw as essential for economic growth. This would involve projecting real output growth and estimating the income elasticity of demand for money to set appropriate money supply growth targets. The committee also recommended more flexible interest rates to discourage over-monetization of government debt and encourage efficient credit use and financial savings.
The Chakravarty Committee was formed in 1985 to assess and improve India's monetary system. The committee recommended monetary targeting to help achieve price stability, which it saw as essential for economic growth. This would involve projecting real output growth and estimating the income elasticity of demand for money to set appropriate money supply growth targets. The committee also recommended more flexible interest rates to discourage over-monetization of government debt and encourage efficient credit use and financial savings.
The Chakravarty Committee was formed in 1985 to assess and improve India's monetary system. The committee recommended monetary targeting to help achieve price stability, which it saw as essential for economic growth. This would involve projecting real output growth and estimating the income elasticity of demand for money to set appropriate money supply growth targets. The committee also recommended more flexible interest rates to discourage over-monetization of government debt and encourage efficient credit use and financial savings.
in 1985 under the chairmanship of Prof. Sukhamoy Chakroborty to assess the functioning of the Indian Monetary system. Its goal was to improve monetary regulation, a feat that was hoped would enable price stability. The committee, which submitted its report in April 1985, believed that price stability was essential for promoting growth and achieving other social objectives. RECOMMENDATION OF CHAKRAVARTY COMMITTEE (1985) MONETARY TARGETING: This is one of the most important recommendation due to the fact that price stability is influenced significantly by the growth of Money Supply, even though it is not the only factor; it can be affected by several other non monetary factors as well. This implies that the target rate of growth of money supply requires: a) To project the rate of growth of real output. b) To estimate the real Income elasticity of demand for Real Money. FLEXIBLE INTEREST RATES: The third component of the scheme of monetary regulation recommended by the committee and which marks an important departure from the prevailing Monetary Policy practice in India relates to significant relaxations in the prevailing system of administered rates of Interest. The committee does not support the idea of pricing Credit too low for both the government and the commercial borrowers in public or Private Sector. This is attributable to the fact that low rates of Interest, encourages too much monetization of Government debt, leaves too little for the Reserve Bank of India's refinance of banks, discourages effective use of Credit by borrowers, discourages financial savings and reduces profitability of Banks and other Financial institutions.