Q.Explain the problems faced by the money market in India.

The Indian money market faces problems such as a dual structure (organised vs unorganised sectors), the continued dominance of unregulated indigenous bankers and moneylenders, shortage of loanable funds, lack of a developed bill market, diversity of interest rates and poor coordination. Any four explain a 4-mark answer.

The money market is the market for short-term funds. The Indian money market, though improving after reforms, still faces a number of problems (any four required):

1. Dualistic structure: It is divided into an organised sector (RBI, commercial banks) and an unorganised sector (indigenous bankers, moneylenders, chit funds), with little coordination between the two.

2. Dominance of the unorganised sector: Indigenous bankers and moneylenders, who are outside RBI control, still finance a large part of trade and agriculture, often charging very high interest rates.

3. Shortage of funds: Low savings, low per-capita income and inadequate banking habits lead to a shortage of loanable funds, especially in rural areas.

4. Absence of a well-organised bill market: The market for commercial bills of exchange is underdeveloped, which reduces the liquidity and smooth working of the market.

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