CHAKRAVARTY COMMITTEE (1985)

The S. Chakravarty Committee was formed

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.