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(a) State three positim and two negative effects of privatization of banks in India.

(b) Discuss the importance of capital in the modem system of production.

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(a) Three positive aspects of the privatization of commercial banks in India: 

1. This process would help public sector banks to take proper credit decisions (or lending operations) in an independent manner. They can have greater flexibility [ in choosing sectors with higher returns and better recoverability. 

2. When banks will be in private hands they will open up branches in different areas with better facilities to earn profits and to serve people better than their competitors. 

3. A competitive environment will be created in the banking sector because these banks will face many other private sector commercial banks. Hence, each public sector bank, which has been privatised, will try hard to survive and evolve new 1 methods to improve their efficiency. As a result, their competitive strength will increase and they would be able to render better quality service. 

Two negative aspects-of the privatization of commercial banks in India. 

1. Small Profits: Different nationalised commercial banks suffered huge losses over the years because of the poor recovery of loans and the growing volume of their non-performing assets. 

2. Despite the huge growth in deposit mobilization, the credit-deposit ratio indicated a declining trend. This implies that the nationalized banks have paid greater attention to deposit mobilization than to credit deployment. 

(b) Capital is defined as “All those man-made goods which are used in further production of wealth.” Thus, capital is a man-made resource of production. 

1. Economic Development: The most important function of capital is to promote the economic development of a country. Economic development can not take place without capital formation. For this purpose, adequate funds are very essential. 

2. Provision for Subsistence: When the producer invests capital, he gets a return on it only when he dispose off the products, but the workers have to subsist during this period, for which the wages are paid from the capital money. Thus, when money from consumers reaches the producer, it is again accumulated as capital money. 

Two functions of capital are: 

1. It helps in the process of division of labour: Capital makes the system of division of labour more refined.lt is only when there is an abundance of capital that is possible to assemble a large number of workers at one place. Only then cap the work be divided into many small parts, and a particular worker can be entrusted with a particularly small part of the work. 

2. It expands employment: Since capital expands production, it also expands employment. Thus, if we are to reduce the volume of unemployment in the country, we must pay attention to capital formation in a country. 

3. Provision for Appliances: Capital is used to provide tools and implements for use by the workers, when they are needed. It is clear that these things are essential for production, without their aid, large-scale production is impossible. 

4. Provision for Raw Materials: A part of the capital is used for arrangement of raw materials for production purposes. Every concern must have on hand a sufficient supply of raw-materials of good quality and in adequate quantity.

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