JAIIB IE and IFS Classes | Module A | UNIT 7 : Economic Reforms | JAIIB Nov 2026 | Kinshuk Sir

Added: 2026-06-09

[00:00:00]I hope all of you are doing fine. Today in the Level Up series we are going to read about IE & IFS. So this series that is leveled up is very for all of you. If you have attended all the lectures till now.

[00:00:13]I hope you are gradually gaining confidence.

[00:00:16]How should you approach the Indian economy and the Indian financial system?

[00:00:21]And if you have missed any video it is highly recommended that after this session is over go and watch those videos also you will definitely get the benefit out of it. So unit number seven talks about economic reforms. And why did these reforms happen?

[00:00:38]Economic Reforms Everyone knows mostly that we are talking about the New Economic Policy 1992, the biggest reform in our entire Indian economy and when we talk about the why of this New Economic Policy, then it starts with some type of crisis, it was a crisis situation in our country where we were not able to control two-three things, even today some of those problems are going on because of the geopolitics. But yes let us start this lecture with the crisis that why the economic reforms happened. And after that, when we understand the reasons behind the crisis, reforms came about.

[00:01:25]Then it comes to which reforms [nasal sound] we get to see. Which committees were involved on whose recommendations these reforms came? So let's get started. First of all, reasons for your economic reforms are simply higher fiscal deficit. The biggest reason was that at that time in 1980 and your late 1980 also, you had a very high fiscal deficit.

[00:01:54]What is fiscal deficit? How is it calculated? Let us read this Iboretly Unit Number 19th That is your Union Budget. But for now, if we have to understand, then in simple language we will understand that the government's expenditure should increase a lot. This means that the government's expenditure becomes very high and the government's revenue and income becomes very low. In such a situation, there will be a gap, the income gap of the government. That is what we call fiscal deficit. Fine. So expenditure was very high during the economic crisis and revenue was not that high. It was low as compared to the expenditure. Ultimately the fiscal deficit of our government had increased.

[00:02:39]And when we talk about the numbers, for now you will see that more or less in the last three-four years also it is somewhere around 4 to 5%, this target is kept by the government. Well, now it has come under four, sorry, it has come under five. But ultimately, if you look at the previous year trends from 2010 till today, the target of fiscal deficit remains in the same range, but during the crisis time, this number of yours was 8.4%, almost double of today's level. So it was a concern area, right? So what was the first issue or the first reason for the economic crisis? Higher fiscal deficit.

[00:03:20]Then come the adverse balance of payments situations. So, why does this POP crisis, balance of payment crisis, happen? So, whenever your country's imports increase, but exports do not increase that much. Wherever we have more imports and less and less of exports. So, we call it balance of payments. So, what kind of payment is this?

[00:03:47]We are telling you the balance of which payment in this situation that the balance payment which you have to pay to the foreign traders because when you import any goods in India, then what do your importers, who are the buyers of India, give? US Dollars are given to the seller to the international seller. So from here we have US Dollar. There is a minus from our account and all the exporters of our country sell their goods outside and the payment comes from abroad into their account. Meaning that US dollar is coming to India. Right? And if there is a situation where the outward movement of US dollar is high as compared to the inward movement of US dollar.

[00:04:40]This is a known balance of payments crisis.

[00:04:43]Because let's just face the reality. If you are not getting that many dollars then how will you give it? Fine. So, this balance which is created, is what we call balance of payment.

[00:04:53]And ultimately the aim of the Indian Government from the beginning has been that we have to become an export led economy. Why?

[00:05:01]So that we do not face any problem in maintaining the foreign exchange reserves.

[00:05:07]You must have heard that recently our Prime Minister had also appealed that you should not go on foreign trips. Do not buy the gold and for that matter, reduce your consumption of different things a bit. Why? Because of this region only. The forex reserves we have in US dollars are gradually depleting.

[00:05:26]Thanks to the geopolitical situation right now going on across the globe. So from the very beginning the government wants you to become an export oriented economy.

[00:05:37]Not just India, every country. Whenever you look at history, how did you become a developed country from a developing country? So what did you start with? As a developing nation, it started exporting. Started providing products to other nations rather than importing them.

[00:05:57]Fine. So, the higher your export potential, the more chances there are that you will move towards becoming a developed nation. And ultimately become the developed India which we imagined for 20047.

[00:06:10]But this is a matter of the future. We stick to our topic only. What was the reason for the economic crisis? Second important reason is balance of payment situation. Fine. So, imports were really high as compared to the exports. Then comes high inflation rates. This was the third reason of the economic crisis.

[00:06:33]If inflation rates are high, what will happen? If inflation is high and increases, then ultimately people will not have the funds they have. And why it is a worrying area. So whenever you talk about GDP, Gross Domestic Product, there is only one discussion in it, first of all what is the production level of your country?

[00:06:55]What is the production level of your country?

[00:06:58]Because if you talk about industrial output or individual output, then the higher your production level is, the greater are the chances of seeing good GDP numbers.

[00:07:10]Because ultimately when you have the income, if it is your salary, if a particular individual is having salary then only after that he will be able to save something, if you do not have salary then how would you be able to save fine and as soon as your salary comes you save a little and from there on you keep on investing in various assets and your wealth is created from these savings only, now if wealth is created then you will invest more.

[00:07:43]You will also buy some assets. Fine. And as soon as you buy these assets, your money is where it is being utilized for buying the assets. And these assets are available when we demand them in the market. So suppliers and producers will have to make supplies in respect of that.

[00:08:03]So what is happening with this? Your demand is also high. Ultimately supply will be ensured. So the production level that we were talking about will be supplied by the suppliers and ultimately their output, the industrial output, will also increase.

[00:08:18]So where does the matter start? You must have a salary. You must have a job because only in an economic system will you be able to contribute towards the nation building. But if you have a salary but are not able to save because inflation has become very high. So will you be able to create wealth? If you cannot save, how will wealth be created? No.

[00:08:40]Then wealth is not being created. Assets will not be created. If assets are not created then you will not demand. If you don't demand, there will be no one to supply. Because there is no demand. And there is no supply.

[00:08:51]Production levels are not increasing.

[00:08:52]Industrial output is not coming. GDP numbers will not increase. So what will happen ultimately? Your growth rate will slow down. And ultimately this is the only reason why RBI keeps inflation in check. RBI, we have just done the Monetary Policy Committee which [nasal sound] the latest report has come, the announcement which was made by our RBI Governor in June, what he has said is that we are projecting gradually up to 5.1%, this time inflation will go out of the zone of 4% and we are right now not concerned because this is just a temporary phenomenon. The current geopolitics, which you can say, the issues that are going on abroad, wars are happening and ultimately tariffs are being imposed, trade restrictions are there, because of that it is just a temporary phenomenon. But yes, if this remains the case in the long term, then we must have some kind of measures to be implemented in our country. So more or less if we talk about high inflation then what was the inflation rate? In today's time when we can come to 5.1%, it means coming. That is just a projection right now. Right now we are in the range of 4.78. But ultimately if 5.1% is the projection then it is also a very big thing. Right? Ah discussion is ongoing ah in the world of economics that yes this is not at all a good sign for our economy. So just imagine that in the 90s the inflation rate was 11.3%, that was huge. Well it is definitely it was one of the most severe economic crisis for our country. So yes, that was the third major reason due to which your economic crisis situation has arisen.

[00:10:44]And ultimately, if we combine these three reasons - your inflation, balance of payment situation, fiscal deficit - then you have an economic crisis that was there in India. So, we understood why the economic reforms happened? Because of these three major reasons.

[00:11:06]These were the reasons for your economic crisis.

[00:11:09]Apart from this, as soon as we start reading about economic reforms, there is a reference by Jagdish Bhagwati who was the Indo-American economist and ultimately he underlined the fact that India's economic disaster is because of three major reasons. So, you have to keep these three reasons related to economic crisis in mind. Also, what were the three immediate reasons due to which the government had to bring in LPG reforms? First of all, bureaucratic controls are high. There were very much you can say in line with the government's tagline of every government. I would say that yes, we will keep our resources under control. So which is good also because in India being not that developed country we have very limited resources and population is very high but nonetheless the bureaucratic controls they were not limited to the social welfare programs they were also directly related to the industrial production. So any investor who wanted to invest had to go through these controls.

[00:12:20]Licenses had to be acquired at different places to start the trade and expand their businesses. And ultimately they were disappointed that yes we do not want to do business in India. Let's try the business in Bangladesh. Let's suppose we set up a factory in Vietnam. Like That It Used To Happen. So bureaucratic controls, that was the first reason and because of this you will see that as soon as the issue of bureaucratic controls was highlighted in the media houses then only we saw some reforms. Inward Looking Trade Was There.

[00:12:52]Foreign investment policies were such that we had a closed India, which has been known historically as a closed economy, which did not open up to the global economy or global participation. So, more or less deglobalization was being carried out indirectly in our country during that time. So because of this you will also see reforms. After that the third reason which was brought out by Jagdish Bhagwati it was inefficient public sector enterprise functioning that our public sector enterprises are not performing well. That is the reason why we are not having ah good growth in the services sector as well. So what did the government bring for these three regions?

[00:13:43]LPG Reforms. Liberalization, Privatization and Globalization. So there were bureaucratic controls. There were very strict rules. For everything.

[00:13:52]If you want to trade, if you want to bring investment, then to end this the government brought liberalization.

[00:14:01]Fine liberalization was there. Then there was a closed economy. So to open up what we studied in Unit Six. Government came up with the solution as globalization.

[00:14:14]That we initiate the process of globalization in our country. Then in the end, for the inefficient public enterprises that you had, the government started with the privatization, that is, we allow private players to enter the market in our economy. And let's see, who knows, due to competition, the functioning of our public sector enterprises may also improve. Let's become a little efficient. So LPG reforms, liberalization, privatization and globalization happened because of these issues.

[00:14:50]Now comes the economic transformation. So, is the reason clear to everyone? Why of your economic reforms because of severe economic crisis. And the reforms were broadly known as LPG reforms. In which L is for Liberalization. Simply what does it mean? You are relaxing the regulations imposed on trade agreements.

[00:15:10]So, in all the trade agreements that were being made, you will see relaxed norms under the liberalization. So what will happen with this? The production capacity of your industry will increase. Government industrial licensing will be abolished.

[00:15:25]And there will be liberty to import the goods. Fine. And because of this, there is a factor of importing the goods, liberty to import the goods. Due to which today you will see that we have a lot of imports.

[00:15:38]Fine, maximum India is importing everything apart from the food products. Fine agriculture is the only sector which does not make us feel more or less that we are an import led economy.

[00:15:52]Otherwise we are importing everything. So yes this is also an outcome of liberalization. Then privatization providing the private sector more opportunities to oversee the various services while limiting the role of the public sector. The public sector will also have a role. We should not do this that we abolish the public sectors. We are keeping the public sector but to increase competition, we have allowed entry of private players under the LPG reforms. So foreign participation and FDI flow started. So foreign direct investment started because of privatization. Even if we say that because of globalization you can bring investment. But if there is no investment opportunity in your country, there is no privatization, then how will you bring FDI? Right? So foreign participation will increase, FDI flows will increase, there will be healthy competition in the Indian goods and services market.

[00:16:52]After this, globalization is simply the integration of the Indian economy with the global economy. And where have we read this definition of integration? In the unit number six. So if you have n't seen Unit Sixth class, it is highly recommended to go and watch that as well.

[00:17:09]How else? How will you implement the process of globalization? You have ultimately opened up the economy. And what will happen with this? It will attract more foreign capital, technology transfer will increase then knowledge to boost its domestic capacity, as well the knowledge you have will be seen because let's just face the reality, whenever we become a part of any big business house, we get to learn a lot from their experience.

[00:17:38]So if global participants are investing in our country, it is a win-win situation for our country because not only funds will come but also the experience that they are bringing with them will be beneficial for our industries. Then comes another important topic which is which committees came for your reforms.

[00:17:58]So in total we have six committees for economic reforms in this chapter. But in Module C, you will find a dedicated chapter where you have more and less committees that we study in the elaborate way. Fine. So if you want to study in the Iborate way then you have to wait till Module C because there you will be taught in the proper way what exact recommendations were given by which committee.

[00:18:29]For that do subscribe our channel because ultimately we will be continuing this series till the end. So to enhance the overall performance of the banking sector the government forms numerous committees and which committees are important ones? First of all, Chakravarty Committee which was on monetary policy. This committee came in 1985.

[00:18:50]Narasimham Committee One on Financial Sector Reforms 1991.

[00:18:56]Then we have the Padmanabhan Committee to Review the Bank Supervision, this committee came in 1996, also Narsimham Committee on the Review of Banking Sector Reforms 1997, Verma Committee on Weak Banks 1998, R H Khan Committee on Harmonisation of the Role of FIs and Banks 1998, so a committee has come for monetary policy, for financial sector reforms and these financial sector reforms were recommended in 91. Were they implemented or not? A review committee for this also came in the Narsimham Committee. Then review the bank supervision. So the Department of Banking Supervision in RBI has taken a lot of inputs from this particular committee, the Padmanabhan Committee. Then weak banks or should we say that you have banks whose balance sheet is not that good and ultimately they are on the verge of becoming a bad bank. So we will study them also.

[00:19:57]We also study the concept of bad bank in Module C. Then we brought a committee called RH Khan Committee for Harmonization on the Role of FI Financial Institutions and Banks, to some extent equating them.

[00:20:10]Because definitely if the banks are profitable then a signal goes to you in the financial world, in the financial market that all your non-banking financial institutions should also gradually bring in such practices which our commercial banks had brought in, ultimately our financial sector should grow, so a committee was formed for their harmonization. Fine and here let me just tell you one thing is different. These years which are given to you, whether you remember them or not, right it does not matter but remember their chronology, you can remember them by mnemonics like CNPNR, by doing something like this you can learn the mnemonics and create a mnemonic and ultimately learn which committee came before you and which one came after you because IIBF is asking various chronology based questions, right so if you want to remember the chronology, if you want to remember the chronology then you must use the mnemonic in this particular segment.

[00:21:17]So Chakravarthy Committee then Narasimam one Padmanabhan Committee Narasimam to Verma Committee R H Khan Committee. Fine. So yes this was it for today's class. I hope you have understood things. You must have understood the core reasons.

[00:21:31]Apart from this, if you want to cover the entire chapter then definitely I would highly recommend that you go through our paid courses. The paid classes are there where you will be taught everything very comfortably and ultimately we will try to cover all the important topics within a limited time period. So the tagline of our course is simple - Concise and Crisp Concept of IFS. Right then, you do not have to study much but you have to study relevant enough so that you can crack your exam with a good margin.

[00:22:05]Fine. So let's attempt the question.

[00:22:07]A Committee on Weak Banks was formed in 1998 under the chairmanship of Dash R H Khan, SA Verma, A K Khandelwal or none of the above.

[00:22:16]Just now we have seen week banks we have sa [nasal sound] verma.

[00:22:20]B is the right answer. Ok? Chakravarty Committee on Monetary Policy, Narasimham One, Financial Sector Reforms, Padmanabhan Committee, Review Bank Supervision, Narasimham Two, Review of Banking Sector Reforms.

[00:22:32]Verma Committee for Weak Banks RH Khan Committee for Harmonisation of Role of FIs and Banks.

[00:22:38]Okay now when we talk about a big news for all of you who are watching this session that we have revamped our JB Mahapack.

[00:22:48]So earlier we used to offer you JB Mahapack 2.0.

[00:22:52]Now we are offering the Mahapak 3.0 where you will get live classes which are highly interactive. Whether you are attending our classes for an hour or after the class you can join the WhatsApp group which will be created especially for you paid users. I am asking doubt on that.

[00:23:12]You will get recorded sessions. Study Notes, PDF Will Be There. Mock tests, full length mock tests are also available. Topic wise practice tests will also be available. Doubt resolution support is available and revision sessions will also be there as the exam approaches.

[00:23:25]And when we talk about the new what is new in Mahapack 3.0 then here you are offered Daily Banker Newspaper.

[00:23:33]So you will get complete coverage of daily updates related to your banking industry.

[00:23:40]You can enroll in the Preparation Assurance Program directly. If you are part of Pack 3.0 there.

[00:23:45]So here you can get an extension of up to 2 months if you fulfill the eligibility criteria. Because we keep telling you to be consistent.

[00:23:54]Maintain consistency in your preparation.

[00:23:56]So we also want you to put in some efforts from our side and for that we have brought this Preparation Assurance Program that we would like you to fulfill minimum 70% of your attendance.

[00:24:11]Attempt minimum 70% of your mock tests. And then definitely we will give you something extra. Lastly, you can see here that Senior Banker Master Classes will also be there. So on our platform we do not only have the faculties who are experienced enough but also we have some senior bankers with whom you can join the sessions on regular basis if you are a part of Maha Pack 3.0 and if you want to enroll in this Maha Pack directly you can use discount code Y13 this is the special code for all of you you will apply this directly and whatever discount you are getting on the website.

[00:24:50]You will get extra discount from that.

[00:24:52]And for more details around this particular Mahapak you can also call us directly on one number which is this what's new I am mentioning here 0981 9819247 ok so yes this was it for today's class.

[00:25:13]If you have any doubt related to today's session, please ask in the comment section. See you in the next session. Till Then Goodbye Everybody. Take care.