Indian Central Banking Enquiry Committee (1931)

The Indian Central Banking Enquiry Committee (1931) was a landmark institutional body constituted during the late colonial period to examine the feasibility, structure and functions of a central bank for India. Its recommendations laid the intellectual and policy foundation for the establishment of a modern central banking system in the country, culminating in the creation of the Reserve Bank of India in 1935. In the context of banking, finance and the Indian economy, the committee represents a crucial turning point in India’s transition from a fragmented monetary system to a centralised and regulated financial framework.
At the time of its formation, India’s banking and monetary system was characterised by currency instability, inadequate credit availability, weak banking supervision and heavy dependence on the colonial government’s fiscal priorities. The committee sought to address these systemic weaknesses through a comprehensive review of India’s monetary and banking arrangements.

Historical background and economic context

During the early twentieth century, India did not have a central bank in the modern sense. Currency issuance was managed by the colonial government, while commercial banking was dominated by presidency banks, exchange banks and indigenous bankers. The absence of a central monetary authority limited coordination in credit management, lender-of-last-resort support and banking regulation.
The global economic disruption caused by the Great Depression intensified concerns about India’s monetary stability. Falling export earnings, deflationary pressures and banking failures exposed the fragility of the existing system. Against this backdrop, the British Indian Government appointed the Indian Central Banking Enquiry Committee in 1930, which submitted its report in 1931.

Composition and leadership of the committee

The committee was chaired by Hilton Young, a prominent British statesman with experience in public finance and administration. Its membership included officials, economists and banking experts representing diverse perspectives on India’s monetary needs.
The committee undertook extensive consultations, examined international central banking practices and analysed India’s economic conditions. Its work was one of the most systematic examinations of Indian banking prior to independence.

Objectives and scope of enquiry

The primary objective of the committee was to assess whether India required a central bank and, if so, to recommend its structure, ownership, functions and relationship with the government. The enquiry covered a wide range of issues, including currency management, credit regulation, banking supervision and rural finance.
In doing so, the committee aimed to reconcile competing interests: maintaining monetary stability, supporting trade and agriculture, and protecting government fiscal operations. This balancing act reflected the complex political economy of colonial India.

Key recommendations on central banking

The committee strongly recommended the establishment of a central bank for India. It proposed that the institution should be responsible for issuing currency, acting as banker to the government, managing public debt and serving as a lender of last resort to the banking system.
Importantly, the committee emphasised the need for operational autonomy to ensure monetary discipline, while recognising the necessity of coordination with government fiscal policy. This principle of relative independence later became a defining feature of India’s central banking framework.

Views on ownership and governance

One of the most debated aspects of the committee’s report concerned the ownership and governance structure of the proposed central bank. The committee favoured a shareholding model with private participation rather than full government ownership, arguing that this would promote professionalism and insulation from political pressures.
Although this recommendation was later modified in practice, it influenced the original design of the Reserve Bank of India, which began as a privately owned institution before being nationalised in 1949.

Approach to currency and monetary management

The committee analysed India’s currency system in detail and highlighted the limitations of government-controlled currency issuance. It recommended transferring this function to an independent central authority to improve credibility and flexibility in monetary management.
The committee also stressed the importance of maintaining adequate reserves and adopting prudent monetary policies to stabilise prices and exchange rates. These ideas were significant for an economy heavily dependent on external trade and vulnerable to global shocks.

Banking regulation and supervision

Another major contribution of the committee was its focus on banking regulation. At the time, banking failures were common, particularly among small indigenous banks. The committee advocated stronger supervision, minimum capital requirements and improved accounting standards.
While comprehensive banking regulation evolved gradually, these recommendations marked the early recognition of the need for systemic oversight to protect depositors and maintain confidence in the financial system.

Implications for credit and economic development

The committee acknowledged that India’s economy, particularly agriculture and small-scale industry, suffered from inadequate institutional credit. It recognised the limitations of commercial banks in meeting these needs and highlighted the importance of cooperative credit institutions.
Although development banking was not its central focus, the committee’s work underscored the link between monetary institutions and economic development, an idea that gained prominence in post-independence economic planning.