ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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FROM THE CHAIR- Administered Interest Rates in India

L M Bhole The rate of interest is an important price in any economy. If it is determined mainly by the market forces, it may help in taking appropriate decisions about saving, investment, allocation of resources, financial and monetary policy, etc However, the level and structure of interest rates in India have remained very closely regulated by the authorities. The present study examines the working of this administered system of interest rates, and discusses the issues and considerations which need to form the basis of future interest rate and monetary policies for the Indian economy THE plan of the study is as follows: In Section I, after stating the background and the content of the present system, we briefly refer to the nature, criteria' and feasibility of an alternative system of interest rates which, according to us, would be appropriate for India. Section II discusses the features and rationale of the present system by reconstructing its scope, techniques, authority, timing, and its effects on interest rates and credit control mechanism. The reasoning and empirical evidence in support of the case for an alternative system are presented in Section III. The lessons from experiences of some countries in operating the similar systems of controlled interest rates are mentioned in Section IV. Summary and conclusions are presented in Section V.

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