Government debt
The third component of the scheme of monetary regulation recommended by the committee and which marks an important departure from the prevailing Monetary Policy practice in India relates to significant relaxations in the prevailing system of administered rates of Interest. The committee does not support the idea of pricing Credit too low for both the government and the commercial borrowers in public or Private Sector. This is attributable to the fact that low rates of Interest, encourages too much monetisation of Government debt, leaves too little for the Reserve Bank of India's refinance of banks, discourages effective use of Credit by borrowers, discourages financial savings and reduces profitability of Banks and other Financial institutions.