This article deals with ‘Mahajanapadas’ . This is part of our series on ‘Ancient History’ which is important pillar of GS-1 syllabus . For more articles , you can click here.


  • During this period , people began to settle on lands and started to call certain areas to be their own  . Hence, Janapadas emerged .
  • Kings, Monks and monarchs emerged on the stage of history.
  • This was the age of intense philosophical speculation . Buddhism, Jainism and many other heterodox sects emerged  as well.

Sources of Information

1 . Literary Sources 

Literary sources include

  1. Brahmanas : Brahmanas (eg Shatapatha Brahmana) are the category of Vedic texts which deals with the methods of performing Vedic rituals. 
  2. Puranas :Puranas provide useful dynastic history .
  3. Upanishads : Upanishads deal with the philosophical problems of the period and were composed 800 BCE onwards.
  4. Buddhist Texts : Sutta Pitaka and Vinaya Pitaka were composed during this period and they  give us graphic descriptions of the contemporary society.
  5. Ashtadhayayi : It is the book on Sanskrit grammar written by Panini in 5th-4th century BCE. Panini mapped out the grammatical rules as it existed in his time .  His book became landmark in history of Sanskrit from Vedic Sanskrit to Classical Sanskrit . Ashtadhayayi is work of grammar but in order to illustrate the rules of grammar , Panini referred incidentally to many aspects of his time – places, people, customs, institutions, coins, weights & measures .

2. Archaeological sources

  • Iron objects such as hoes, sickles, knives, hooks, nails, arrowheads, vessels and mirrors confirm the widespread use of iron technology.
  • Northern Black Polished Ware (NBPW) is the characteristic pottery of this period.
  • Textiles, beads,, ivory objects, ceramics and glassware and artefacts of other metals are found.
  • A large number of terracotta artefacts have also been found.
  • Sites belonging to this period include series of punch marked coins which marked use of money in subcontinent .

Developments in the Gangetic Plains

Development of Agriculture

  • Agriculture improved during this phase in the middle Gangetic plains creating the necessary surplus as
    1. Wet rice cultivation began to yield more produce of rice than other crops.
    2. Iron technology also played a crucial role.
  • Reasons for improvement of agriculture were 
Use of Iron Iron axes could be used to clear forests and iron plough shares could facilitate agricultural operations. Iron ploughshare increased the productivity of land .
Practice of wet rice cultivation This was especially useful in the Middle Gangetic Valley. Wet rice cultivation is substantially higher than those  of wheat or millet in traditional agriculture, leading to creation of large surplus .
Rise of Organised State State helped in establishment of new settlements by shifting surplus population from overpopulated areas, providing  cattle, seed, money and irrigational facilities and providing remission of taxes and other concessions to peasants in new establishments
Role of Buddhism Buddhism was against sacrifices . It insisted on the protection of cattle and preservation of cattle wealth for agricultural purposes was encouraged .
  • Leisure time provided by agricultural surplus and technology led to growth of crafts, which in turn aided vibrant trade.

Second Urbanisation

  • Agricultural surplus, the growth of crafts and trade, and the growing population led to the emergence of towns in the Gangetic plains. This is called the second urbanisation in Indian history after the first urbanisation evident  in the Harappan Civilization.


  • The Later Vedic period (1000–600 BCE) witnessed the transition from a tribal polity based on lineage to a territorial state.  The loyalty of the people shifted from  Jana (tribe or clan) to Janapada (territory). The Janapadas fought with one another for resources and political dominance. Some Janapadas extended their territories and brought various Janas within their jurisdiction. Such Janapadas grew into Mahajanapadas .
  • In Mahajanapadas,
    1. The king headed the government aided by a centralised administration.
    2. The king was also the sovereign ruler.
    3. The king levied taxes out of agricultural surplus and redistributed it and ensured maintenance of law and order in a hierarchical society by force and coercion.

16 Mahajanapadas

  • According to Puranic, Buddhist and Jaina traditions, there were 16 Mahajanapadas. These were
    1. Gandhara
    2. Kamboja
    3. Assaka
    4. Vatsa
    5. Avanti
    6. Shurasena
    7. Chedi
    8. Malla
    9. Kuru
    10. Panchala
    11. Matsya
    12. Vajji (Vrijji)
    13. Anga
    14. Kasi
    15. Kosala
    16. Magadha
  • The Mahajanapadas are further classified as Gana-Sanghas and Monarchies based on the nature of their polity.


  • Gana-Sanghas were oligarchies, which were centred on clans.
  • These kingdoms did not come under the single decision-making authority of a king but decisions were taken on a collective basis by the heads of the different clans together.
  • Powerful monarchies have large standing armies but such organisation may be absent in Gana-Sanghas . Their  military defeats from monarchical states was because of  inability  of military system to meet challenge of empire building.
  • Varna organisation did not determine social status . Two broad categories were those who owned land and those who laboured on it. Brahmans might not have enjoyed same prestige as there was hardly any reference of gift to Brahmana .
  • Two Mahajanapadas –  Vajji & Malla were Gana-Sanghas.

Side Topic : Were Gana-Sanghas Republic?

  • Translation of this as Republic is misleading . These were oligarchies where power was vested in heads of leading Kshatriya families with no single hereditary monarch  .
  • Early studies on ganas by nationalist historians tended to glorify them by exaggerating their democratic features . Comparisons were made with republics of Greece & Rome & modern political institutions . Lot was to disprove the assertion of western scholars that Indians had never known anything other than despotic rule .
  • Their governance was marked by Corporate element . Arthashastra (a later text although) outlines special strategies that ‘to be conqueror’ could use to vanquish ganas (advise focussed on creating dissension among their ranks) .


  • Monarchical states had the king as head .
  • There was well developed taxation system with standing armies .
  • Vedic orthodoxy was an established practice in these kingdoms. The priestly class enjoyed a preeminent status in the Mahajanapadas .  The Brahman priests provided the legitimacy to the king through various rituals.
  • The kingship was hereditary and the succession was in most cases based on the law of primogeniture.
  • The king was assisted by councils called Parishad and Sabha. The councils were advisory in nature.
  • There was well developed taxation system in Monarchical states. The revenue thus raised was used to maintain elaborate administrative system and army.


Rural Economy

  • here was emergence of the  private property in land
  • Agriculture started to produce surplus which led to rise of urban centres.
  • State also encouraged expansion of agriculture .

Urban Economy

  • This period led to the start of 2nd Urbanism .
  • Formation of states gave impetus to Urban economy. Small aristocracy which extracted taxes started to demand luxurious items giving push to artistic activities and trade .
  • Age of barter trade was almost over. Punch marked coins  of copper & silver came to use  . 
Economy of Mahajanapadas


  • There was shift in geographical region to Upper & Middle Gangetic Plains .
  • This period led to the institutionalisation of inequality in the society and hardening of caste system  .
  • Practice of untouchability started . Dharmasutras equated them with crows & dogs. Contact even accidental was considered polluting .
  • Strict control over women’s sexuality was practiced as it was essential for the patrilineal transmission of property and for maintenance and perpetuation of  endogamous caste structure. 
  • Wandering Ascetics
    • Paribrajakas and Sramanas. These were people who had renounced families
    • They travelled from place to place and held discussions on  meaning of life, society and spirituality.
    • Among them were Buddha and Mahavira .  

Vedic Period

Vedic Period

This article deals with ‘Vedic Period’ . This is part of our series on ‘Ancient History’ which is important pillar of GS-1 syllabus . For more articles , you can click here.


  • Decline of Harappan cities was followed by another great civilisation and culture known as Vedic culture.
  • Vedic culture was the culture of the speakers of Indo-Aryan language, Sanskrit, who would have entered  India from the north-west India.
  • Their initial settlements were in the valleys of the north-west and the plains of the Punjab. Later, they moved into Indo-Gangetic plains.
  • As they were mainly a cattle keeping people, they were mainly in search of pastures.
  • The period of Vedic Culture between 1500 B.C and 600 B.C may be divided into
    1. Early Vedic Period or Rig Vedic Period (1500 B.C -1000 B.C)
    2. Later Vedic Period (1000B.C – 600 B.C)

Debate around original home of Aryans

The original home of the Aryans is a debatable question and different scholars have different view regarding this

  1. European Theory : Supported  by scholars like Sir William Jones , this theory was based on the similarity of all Indo-Aryan languages like Sanskrit, Greek, Latin, German etc. It states that Continent of Europe was the homeland of Aryans.
  2. Central Asian Theory : Supported by scholars like Max Muller , it argues that Central Asia was the original homeland of Aryans based on the similarities in ‘Avesta’ (Iranian text) and the ‘Vedas’.
  3. Artic Region Theory : Main proponent of this theory was Bal Gangadhar Tilak . According to this theory,  the Aryans came from the Arctic region based on the astronomical calculations.
  4. Indian Theory : This theory was supported by Dr. Sampurnanand and A.C. Das. They argued that Aryans were indigenous to the subcontinent. They argue that there are definite literary evidences in the Vedas that the Aryans regarded the Sapta Sindhu as their original home. Along with that, the sacrificial rituals of the Vedic Aryans having similarity with Harappan practices point towards their  Indian origin.

The most accepted view is that Aryans came to India from Central Asia from what is known as Andronovo culture . This is corroborated by similarities in the language of Rigveda and  Avesta ( oldest Iranian texts) along with other features like Cremation , Fire Cult etc. Apart from that, Genetic Marker called  M17 , found in 40% of Central Asian Steppe people is found in Speakers of Indo Aryan Language .

Also, there wasn’t any Aryan invasion but  there was a series of Indo-Aryan Immigrations and they came to the sub-continent as immigrants.

Sources of Vedic Period

There are two type of sources i.e. Archaeological and Literary Sources.

1 . Archaeological Sources

  • Early Vedic culture is correlated with some  Chalcolithic cultures of India especially Ochre Coloured Pottery Ware cultures.
  • On the other hand, Later Vedic culture is correlated with the Painted Grey Ware Culture of the Iron Age in North India.
  • But in contrast to Harappan Civilization, when the urban sites and farming cultures were present in a limited area, there was agricultural  expansion in many parts of India accompanied with growth of craft production and population.

2 . Literary Evidences

2.1 Vedas

Vedas (Vid = to know, Vidya) are one of the earliest known texts composed in India. The language of the Vedas is  Vedic Sanskrit. There are four Vedas i.e.  Rig Veda, Yajur Veda, Sama Veda and Atharva Veda. The Vedic texts were memorized and orally transmitted by Brahmins from generation to generation. They were written down in the later period, after the introduction of writing.  The earliest known written manuscripts of the Vedas date to the 10-11th century CE.

a . Rig Veda

  • It is world’s oldest surviving poetry with extraordinary beauty & philosophical depth .
  • Total number of hymns are 1028 , arranged in 10 Books or Mandalas. These hymns personify forces of nature and try to control and appease them .
  • Books of Rig Veda are as follows
Books 2-7  – They are the oldest books & known as Family Books .
These books are dated between 1500 and 1000 BCE and represent the Earlier Vedic Age.
Their composition is attributed to families of seer poets – Gritasamada, Vishvamitra , Vamadeva, Atri, Bhardwaj & Vasishtha  .
Books 1,8,9,10 These books seems to be of younger age i.e. 1000 BCE onwards.

b . Sama Veda

  • There are total of 1810 hymns .
  • Most of the hymns are borrowed from Rig Veda & arranged according to needs of musical notations .
  • These hymns were used for singing in connection with sacrifices .

c . Yajur Veda

  • Yajur Veda consists partly of hymns & partly of prose sentence (yajus) . Most of hymns of Yajur Veda are taken from Rig Veda.
  • Yajur Veda deals with performance of rituals .

d . Atharva Veda

  • Atharva Veda is the latest Veda among four.
  • It consists of 781 hymns which are divided into 20 books.
  • It contains hymns ,  spells and charms which reflect the  popular beliefs  .
  • Great importance of Atharva Veda lies in the fact that it is the invaluable source of knowledge of the real popular belief as yet uninfluenced by the priestly religion 

Note : Tradition of Vedic chanting is included in the UNESCO’s List of Intangible Cultural Heritage.

2.2 Brahmanas

  • Each Veda has Brahmanas which are prose explanation of the Samhita portions in terms  of sacrificial rituals & their outcomes. They reflect the spirit of an age in which all intellectual activity was concentrated on the sacrifice  .
  • Among most important Brahmanas are
Rig Veda Aitareya  Brahmana
Sama Veda Jaiminiya Brahmana
Yajur Veda Taittiriya Brahmana 
Atharva Veda Gopatha Brahmana

2.3 Aranyakas

  • Aranyakas are also known as ‘Forest Books.’ 
  • They were probably composed for the old men who had retired into forest & were unable to perform elaborate sacrifices requiring many articles . For them meditation became of superior merit .
  • These books interpret sacrificial rituals in a symbolic & philosophical way.

2.4 Upanishads

  • There are total of 108 Upanishads but 14 are considered principle .
  • Upanishads literally means to sit near someone &  is understood as referring to pupils sitting near  their teachers . Knowledge that was to be imparted  was not ordinary knowledge . It was all encompassing the key to liberation from cycle of birth, death & rebirth , something that could be taught to select deserving pupils .
  • In Upanishads , Indian society started to question the traditional Vedic religious order. The materialistic aspect of religion was discarded and Vedic religion was raised to realm of philosophical doctrine involving around the new concept of Atman (the indestructible soul) and  ‘Brahman’.
  • Note : Satyameva Jayate is taken from Mundaka Upanishad.

2.5 Vedangas

  • Vedangas are also known as the  limbs of the Vedas.
  • They include work such as
Srauta Sutras Deal with major rituals such as Ashvamedha and  Rajasuya .
Grihya Sutras Which lay down the norms for domestic rituals including rites of passage .
Dharma Sutras that lay down social norms .
Sulba Sutras laying down principle of geometry that were used for constructing the sacrificial altar .
  • These texts were also composed over a very long period of time, between c. 800 BCE to c. 200 BCE.

3 . Zend Avesta

  • Earliest part of Zend Avesta is attributed to 1400 BCE .
  • Zend Avesta deals with fire worship, horse sacrifice, cult of soma (or haoma in Avestan language) and there is similarity in name of gods and social classes with Vedas.

Horse Centeredness in Vedic Culture

  • Horse is indispensable trait of Aryan culture .
  • In Vedic & Avestan Texts , personal names are horse centred . Various Iranian chiefs in Avesta & various Iranian tribes mentioned by Herodotus were named after Horse .
  • In Rig Veda, name ASVA comes in various forms 215 times . No other animal was named so frequently. Even Cow (Go) word occurs 176 times.
  • Rig Veda has prayers to god to grant King with ‘Swift Horses’ and ‘Strong Sons’.
  • Various sacrifices and ceremonies involved Horse. Eg : Ashvamedha & Rajasuya (chariot race) Yajnas.

Arguments to prove that Harappan & Rig Vedic people werent’ same

  • Mode of living was different
    • Harappan civilization was an urban civilisation.
    • Rig Vedic people were pastoral and rural in nature.
  • Archaeological evidences show that
    • Harappan phase ended in 1900 BCE .
    • Aryans arrived in India around 1500 BCE .
  • Rig Vedic people were only aware of barley but Harappans were aware of wheat , sesamum, peas etc.
  • Vedic Chiefs were horse centred but Harappans weren’t aware of this animal.
  • Writing of both Civilisations was different. Rig Vedic people spoke Vedic Sanskrit whereas Harappan Script has not been deciphered yet.
  • Harappans practiced earth burials whereas Vedic people cremated the dead ones.

Culture reflected through Rig Veda Samhita

  • Historians divide Rig Vedic Corpus into two parts 
    • Early Vedic Texts : Family Books of Rig Vedic Samhita .
    • Later Vedic Texts : Books 1,8,9 & 10 of Rig Vedic Samhita  + Samhita of Sama, Yajur & Atharva Veda + Brahmanas, Aranyakas & Upanishads .
  • Cultural stages reflected in two broad strata of early & later Vedic texts have come to be known as early & later Vedic cultures .

Part 1 : Early Rig Vedic Culture (1500 – 1000 B.C.)

During the Early Vedic period, the Aryans were mostly confined to the Indus region. They lived in the area of eastern Afghanistan, Pakistan, Punjab and fringes of Western Uttar Pradesh. Rig Veda mentions some of the rivers of Afghanistan like river Kubha along with Indus and it’s tributaries. It also mentions Saraswati which has been identified as Ghaggar-Hakra channel in Haryana and Rajasthan , but it’s Rig Vedic description shows it to be Avestan river Harakhvati or present day Helmand in Afghanistan.

Vedic Period

The political, social and cultural life of the Rig Vedic people can be traced from the hymns of the Rig Veda.

Political Organization

  • Rig Veda is pervaded with aura of wars .
  • Kinship was the basis of the social structure of Rig Vedic society. People were identified with specific clans and the clans formed the tribe or jana. People’s primary loyalty was to the tribe. About 30 tribes/Janas  have been mentioned in the Rig Veda . Purus & Bharatas were two dominant tribes. They initially seem to be allies but at some point fell apart .
  • Rig Vedas speak about not only the Aryans, but also about the non-Aryan people, whom the Aryans referred to as Dasas or Dasyus . Dasyus were dark native people who had different cultural practices. When the Rig Vedic people moved into India they came into conflict with these people .  
  • Prayers to Indra to defeat not only Dasa but also Arya enemies indicate there were conflicts between Aryans too .
  • Aryans are associated with introducing Age of Chariot , spoked wheel and were equipped with better weapons and horses. This gave them edge over original inhabitants.
  • Word Rajan occurs many times . Since full fledged monarchical state hadn’t emerged , it is best translated as chieftain  . His main task was to protect his people & lead them to victory in war.
  • Reference to Chieftain as Gopa /Gopati i.e. Lord of Cattles indicate protecting and increasing herd was his major role .
  • Royal priest accompanied Rajan to Battle , recited prayers & supervised performance of rituals.
  • Rig Veda mentions Sabha & Samitis . Such assemblies might have played important role in redistribution of resources . Apart from that, it acted as check on Rajan and Rajan couldn’t do anything without the approval of these bodies.
Sabha Seems to be smaller & more elite gathering
Samitis Larger assembly presided by Rajan

Social Life

Absence of strict social hierarchy (Caste)

  • In family books, ‘Varna’ word occurs but it means ‘Colour’ . Word Brahmana & Kshatriya is frequently used in family books but word Varna in context of fourfold divided society is never used . Word Vaishya & Shudra is altogether absent .  (Purushasukta Hymn of Book 10 of Rig Veda was the first to speak about 4 fold division)
  • Absence of strict social hierarchy & existence of social mobility is suggested in book 3 by hymn –   ‘O Indra , fond of Soma , would you make me the protector of people or would you make me a king , would you make me a sage who drink soma , would you impart me endless wealth?’ 

Position of Women

  • 19th century socio-religious reformers & 20th century  nationalist historians  represented Vedic age as golden age for women . They pointed out that 
    1. Vedic people worshipped goddesses .
    2. Rig Veda contains hymns composed by women .
    1. Presence of women sages .
    2. Women took part in rituals along with their husbands .
    3. Women took part in chariot races .
    4. Women attended Sabha & various social gatherings .
    1. Rig Veda attaches importance to institution of marriage . Rituals indicate post puberty marriage & there are references of women choosing their husbands . Women could remarry if his husband disappeared  .
    1. Polyandry was present as Maruts are represented as living with Rodasi and two Asvin brothers lived with daughter of sun god .
  • But other scholars challenge it on following account
    1. Great part of discussion is about elite women ignoring less privileged ones.
    1. Although Rig Veda mentions goddesses but none of them is as important as major gods.
    2. Social implication of worship of female deities is complex . It shows ability of society to visualise divinity in women form but it doesn’t automatically mean that real women enjoyed power or privilege .
    3. Proportion of hymns attributed to women are minuscule 12-15  out of over 1000 .
    4. Women participated in Vedic rituals & sacrifices but as wives on behalf of his husband  .
    5. Vedic society was patrilineal &’patriarchal – women enjoyed little control over material resources .
    6. Rig Vedic prayers are for son & not daughter & absence of sons is deplored .

Nature of Household

  • Household was called  Dam which was under joint control of  husband and wife, called  dampati (dual).
  • Both sons and daughters seem to have been welcome in the dam.

Joint Family

  • There is single word to denote nephew, grandson , cousin etc. This imply that differentiation in family relationships leading to the setting up separate households had not occurred and family was a large joint unit.


  • Wheat and barley, milk and its products like curd and ghee, vegetables and fruits were the chief articles of food.
  • However, the eating of cow’s meat was prohibited since it was a sacred animal and  was considered aghnya (not to be killed).
  • Drink known as SOMA consisted of the juice of Soma plant, mixed with milk, sour milk or yava (cereal) was their favourite . SURA seems to be intoxicating drink made by fermenting grain.

Leisure time

  • There are references to singing , dancing & musical instruments eg vina , vana &’drums. Dramas , Chariot racing & gambling with dice  were  source of entertainment .

Economic Condition


  • Prayers in Rigveda suggest that Early Vedic Economy was predominantly , if not exclusively , Pastoral in nature. It is corroborated by the references to cattle as wealth  and typical kind of animosity shown towards urbanity as Indra known as Purandara (breaker of Forts / Cities) .


  • Pastoralism was no doubt important but Agriculture cant be altogether ignored .
  • Archaeological evidence points to the development of agriculture among the Rig Vedic people.
  • The ploughshare is mentioned in the Rig Vedas. There are hymns in Rig Veda referring to levelling of fields for cultivation, desire for fertile fields  & producing rich harvests . There are prayers to Indra to  grant or enrich fields . Indra is also referred to as protector of crops and winner of fertile lands .
  • They cultivated barley (yava).

Craft Production

  • Rig Veda mentions artisans such as carpenters, chariot-makers, weavers and leather-workers.
  • Weaving of clothes of cotton and wool is also mentioned.
  • Copper metallurgy was one of the important developments of this period.
  • Word Ayas occur in many contexts like Indira’s thunderbolt of Ayas , Agni compared to edge of Ayas etc.  . But it is not clear which metal these objects were made of . Some scholars  interpreted Ayas as Iron artefacts which is not true as Early Rig Vedic Age was chalcolithic in nature .  Ayas could have meant copper, bronze or may be general term for metals .

No notion of private property

  • Notion of private property ownership didn’t exist . Clan as whole enjoyed rights over major resources like land & herds .


  • Although trading activities were limited but traders referred to as ‘Panis’ were present during the Early Vedic period. 
  • Coinage system was not developed and most of the trade was carried in Barter.


  • Bullock carts, horses and horse-drawn chariots were used for transport.
  • There are references to the sea (samudra) and boats (nau) indicating riverine transportation as well.

No formal taxation system

  • There was no regular revenue system although Rig Veda mentions the voluntary gifts (bali) received by Rajan from the members of clan . 
  • War booty was major source of wealth .


  • Rig Vedic Aryans worshiped the natural forces like earth, fire, wind, rain and thunder i.e. Rig Veda reflects Naturalistic Polytheism. They personified these natural forces into many gods and worshipped them. The important Rig Vedic gods were Indra (thunder) ,Agni (Fire),  Prithvi (Earth),  Vayu (Wind) and Varuna (Rain) .
  • Religion followed by the Early Rig Vedic people was ‘sacrificial’ in nature. Animal sacrifice is way to kill older animals with no economic utility and lessen the burden on their owner.
  • Indra was the most important and most frequently invoked god in Rig Veda . 250 Rig Vedic hymns are attributed to him. He was vigorous & strong , great warrior . His weapon was thunderbolt (Vajra)  & he led Aryas to victory in Battles . He loved to drink Soma . The most important  myth associated with him was his win over serpent demon Vritra who was hiding water. Indra finally killed him with his Thunderbolt & released the water. According to (historian) DD Kosambi, these stories originated from the clashes between Aryan Tribes whose chief was envisaged as Indra and Non-Vedic original settlers and breaking of agricultural dams built by these settlers.
  • Next in importance was Agni who was regarded as an intermediary between the gods and people.
  • Varuna who personified water was supposed to be the upholder of the natural order.
  • There were female gods like Aditi and Ushas as well.
  • There were no temples and no idol worship during the early Vedic period.

Part 2 : Later Vedic Period (1000 – 600 BC)

  • The Later Vedic culture is dated to the period between 1000 BCE and 700–600 BCE.  The Satapatha Brahmana refers to the expansion of Aryans to the eastern Gangetic plains
  • The Painted Grey Ware Culture of  the Iron Age is associated with the Later Vedic culture.
  • The Aryan speakers expanded till Ganga-Yamuna doab in the Later Vedic period.
  • The Bharatas and Purus, the two major tribes, combined and thus formed the Kuru people.  Soon the Kurus occupied Delhi and the upper reaches of the doab, the area called Kurukshetra or the land of the Kurus. Gradually they coalesced with a people called the Panchalas who occupied the central part of the doab. The authority of the Kuru–Panchalas people spread over Delhi ,and the upper and central parts of the doab. They set up their capital at Hastinapur situated in Meerut district. The history of the Kuru tribe is important for the battle of Bharata, which is the principal theme of the great epic called the Mahabharata. This war is supposed to have been fought around 950 BC between the Kauravas and the Pandavas. Since both of them belonged to the Kuru clan, as a result of war virtually the whole of the Kuru clan was wiped out.
Later Vedic Period

Political Organization

Larger Kingdoms

  • Later Vedic people led a settled life leading to formation of territorial units.
  • Larger kingdoms were formed during the later Vedic period. Many Jana or tribes were amalgamated to form Janapadas.
  • The wars were no longer fought for cows, but for territories.

Hereditary Kings

  • Hereditary Kingship was emerging & Shatapatha Brahmanas refer to kingdom of 10 generations
  • In absence of firmly established principles of heredity & primogeniture, rituals became  important for  ruler to assert his authority. Ceremonial sacrifices like Rajasuya (consecration ceremony), Ashvamedha (horse sacrifice) and Vajpeya (chariot race) were performed on lavish scale and were thought to give  Super-Human status to chiefs , legitimising their rules.


  • Taxes were not yet formally collected although Bali  was possibly acquiring an obligatory character.
  • The king received voluntary or compulsory contribution called Bali from the people .


  • Although well developed bureaucracy was still absent but number of officials increased than Early Vedic Culture.  Some of the officials include
    1. Purohita : Chief Priest
    2. Charioteer or Suta : Companion of Raja in his exploits & who narrate tales of valour on a number of occasions.
    3. Senani : Leader of the Army
    4. Sangrahitr : Associated with gathering resources.
  • At the lower level, the administration was possibly run by village chief called Gramini.
  • Even in later Vedic times the king did not have a standing army. Tribal units were mustered in times of war .

Reduced powers of Sabha and Samiti

  • Sabha & Samiti continued to exist but with increase in power of king , power of these assemblies decreased.
  • Membership was also reduced to chiefs and rich nobles, and women were no longer permitted to sit in the Sabha .

Social Conditions

Varna Hierarchy

  • Purushasukta Hymn in Book 10 of Rig Veda for the first time refers to 4 social groups – Brahmana , Rajanya (or Kshatriya) , Vaishya & Shudra  .  Varnas are described as being created at same time as that of earth , sky , sun & moon indicated this was considered a part of natural & eternal order of world .
  • The two higher classes – Brahmana and Kshatriya enjoyed privileges that were denied to the Vaisya and Sudra.
  • The concept of dvija (twice-born) developed and the upanayana (sacred thread) was limited to the upper sections of the society. This ceremony marked the initiation for education. The fourth varna was denied this privilege and the Gayatri mantra could not be recited by the Sudras. Women were also denied upanayana and Gayatri mantra
  • Although there is no indication of practice of untouchability but in later Vedic texts groups like Chandalas were looked upon with contempt by elites . In Chandogaya  Upanishad ,  they are described as victims to be offered in symbolic Purushamedha (human sacrifices) & dedicated to deity Vayu (wind) suggesting they lived in open air .

Position of woman

  • Position of woman started to deteriorate compared to the Early Vedic Period corroborated by following facts
    1. Women lost their political rights of attending assemblies.
    2. Child marriages became common.
    3. According to Aitreya Brahmana, a daughter has been described as a source of misery.
    4. Polygyny became frequent.
    5. Society became strictly patrilineal and patriarchal .
    1. Atharva Veda contains charms for changing a female foetus into a male one .
  • But at some places, Women were  praised & exalted in  in later Vedic texts . For instance
    • Shatapatha Brahmana states that  wife is half the other half of her husband & completed him .
    • A few women like Gargi & Maitreyi  participated in the philosophical debate with Upanishadic Sages .
    • Vishpala was a women warrior who lost a leg in battle  but such references were far apart & minuscule .

Nature of Household

  • Household was called  Griha which was under the control of husband called Grihapati.
  •  Griha had three components: a patni,  cattle  and sons.


  • Apupa was the cake mixed with ghee .
  • Milk products were consumed.
  • Meat was eaten on special occasion like honouring guests .
  • There are references of intoxicants like Sura .
  • Soma plant become difficult to obtain . Hence, substitutes were allowed .

Economic Conditions

Use of Iron

  • Earliest references to iron  found are  during Later Vedic Period
    • Term Krishna Ayas in Yajur Veda & Atharva Veda  refers to Iron.
    • Taittariya Samhita   mentions ploughs driven by 6 or even 12 oxen (made of iron) .
  • Iron was used extensively in this period and this enabled the people to clear forests and to bring more land under cultivation.  Iron is believed to have played an important role in the conversion of the forests of the Ganga Valley into agricultural lands.


  • Agriculture became the chief occupation as iron helped to clear the forests.
  • Improved types of implements were used for cultivation.
  • Satapatha Brahmana mentions rituals related to ploughing.  The god Balarama is depicted with a plough, which suggests the importance of cultivation.
  • Besides barley , rice and wheat were grown.

Property rights

  • Land was owned and occupied by extended families .

Craft Production

  • Arts and crafts proliferated during the Later Vedic age and craft specialization took deep roots.
  • Metal work like iron and copper became important.  Weaving was undertaken by women. Leatherwork, pottery and carpentry were well known.
  • Bow makers, rope makers, arrow makers, hide dressers, stone breakers, physicians, goldsmiths and astrologers are some of the specialized professional groups mentioned in the texts.


  • Vaisyas  carried on trade and commerce. They organized themselves into guilds known as ganas.
  • No evidence of coins has been found and therefore barter must have been the medium of exchange. The introduction of coins took place after about 600 BCE.


  • Gods of the Early Vedic period like Indra and Agni lost their importance. Prajapati (the creator), Vishnu (the protector) and Rudra (the destroyer) became prominent during the Later Vedic period.
  • Sacrifices  became  very elaborate. The importance of prayers declined and that of sacrifices increased.  It was believed that sacrifices could solve many problems.  The correct performance of sacrifices was stressed. Stress was laid on paying dakshina to the Brahmins performing the sacrifices.
  • The rise of Buddhism and Jainism and upanishadic philosophy within hinduism was the direct result of reaction to these elaborate sacrifices. Upanishads stress the importance of realising the atman or inner self and heterodox faiths such as Buddhism and Jainism  emphasized on correct human behaviour and discipline.

Harappan Civilisation

Harappan Civilisation

This article deals with ‘Harappan Civilisation’ . This is part of our series on ‘Ancient History’ which is important pillar of GS-1 syllabus . For more articles , you can click here.


  • Indus Valley Civilisation represents the first phase of urbanisation in India contemporaneous with the civilisations of Mesopotamia and Egypt
  • This civilisation did not appear all of a sudden. It developed gradually on the foundations provided by Neolithic villages in the area.  For example, Neolithic villages in this region go back to about 7000 BCE at the Neolithic site of Mehrgarh.
  • It is known by various names like
    1. Indus Valley Civilization : It was mainly spread in valley of Indus and it’s tributaries.
    2. Harappan Civilization  : As Harappa was the first site of this civilisation to be discovered.

Area of spread

  • Civilization was spread over nearly 1.5 million sq. km area.
  • Its core area was in the regions of Pakistan, Punjab, Haryana, Rajasthan and Gujarat.
  • It is spread between
    1. Sutkagen-dor (on Pakistan-Iran border) in the west 
    2. Manda (Jammu and Kashmir) in the north
    3. Alamgirpur (Uttar Pradesh, India) in the east
    4. Daimabad (Maharashtra, India) in the south 

Phases of Harappan Civilisation

Harappan civilisation is dated between c. 2600 and 1900 BC. There were earlier and later cultures, often called Early Harappan and Late Harappan. The Harappan civilisation is sometimes called the Mature Harappan culture to distinguish it from these cultures.

Early Harappan 3000 to 2600 BCE It is known as ‘Period of Regionalisation‘. It was proto-urban formative phase . Settlements had fortifications and craft specialisation started to develop. But large cities were absent. 
Mature Harappan 2600 to 1900 BCE It is known as ‘Period of Integration ‘. It was full fledged Urban phase. Settlements were large and high degree of craft specialisation was reached.
Late Harappan 1900 to 1700 BCE It is known as ‘Period of Localisation‘. It was post-urban phase . Settlements were small , more in number but rural in character. Single Harappan Culture fragmented to 3local phases
1. West Punjab Phase (Cemetery- H Culture)
2. Jhukar Phase Rangpur Phase
3. Ganga Yamuna Doab Phase

Note : The urban phase was prevalent in the mature Harappan period and began to decline afterwards.

Town Planning

1 . Planned Towns

  • Harappan Cities were well planned .   
  • There was Grid Pattern of streets cutting each other at right angles . The streets were wide enough for too and fro movement of traffic.
  • City was divided into two distinct parts i.e.
    • Citadel : Small , higher &  fortified (walled) which housed important  buildings like Granaries, Great Bath etc.
    • Lower Town : Bigger , lower and separately walled housing common public .  
  • Since the city was walled, it meant that once the wall was built, it couldn’t be expanded. It corroborates the fact that city was first planned and then built according to the plan.

2 . Fortified Towns

  • Harappan cities were fortified
  • These fortifications could have served following purposes :-
    • Protection from attacks .
    • Exclude outsiders  .
    • Helps  to control activities inside the fortification.
    • If traders bring goods from places faraway they can demand share for allowing  access to potential buyers inside

3 . Impressive drainage system

  • It was the most complete ancient drainage system  seen in any ancient civilization.   Perhaps no other Bronze civilization paid such emphasis on health and cleanliness as Harappans.
  • Every house was connected to street drains.
  • Main channels were made of bricks set in mortar and  covered with loose bricks that could be removed for cleaning. House drains first emptied into a sump or cesspit into which solid matter settled while waste water flowed out into the street drains.
  • Drainage systems were not unique to the larger cities, but were found in smaller settlements  as  well. 

4 . Extensive use of standardised baked bricks

  • Size of bricks was uniform (ratio = 4:2:1).
  • Standardised size of bricks indicate that brick making was organised on large scale.
  • Various brick laying techniques were used including ENGLISH BOND STYLE (for maximum strength).
  • Note : In contemporary Egyptian Culture, dried bricks were used . Although, baked bricks were used in Mesopotamia but they were used much widely in Harappan culture.

5 . Houses

  • People lived in houses of different sizes showing that stratification was present in the society.
  • Staircases were present in some houses which might have led to roof .
  • Although most of houses were single storied . But two and three storied houses were also present.
  • Floors were made of high packed earth. 
  • Small houses attached to large ones might have been quarters of service groups  .
  • Toilets & Bathrooms : Houses  had separate bathing & toilet areas . Floor of these was made of tightly fitted bricks .
  • Houses were without much decoration showing utilitarian outlook of Harappan people .

Crafts and Techniques

  • Harappans mass – produced standardised items.
  • Some were quintessentially Indus, i.e. they are neither found prior to the advent of civilization nor after its collapse. Eg : Indus seals .

1 . Harappan Pottery

  • Harappan Pottery reflects efficient mass production .
  • Features of typical Harappan Pottery were
    • Harappan pottery was well baked .
    • Harappan Pottery was made with potter’s wheel.
    • Pottery has bright red slip decorated with black designs .
    • Shapes – There was great variety of shapes like pots,  large Jars  (to store grains or water), flattish dishes (used as plates), perforated jars (use not clear) etc.
    • Decorative designs on pottery includefish scales, pipal leaves , horned deity , intersecting circles, zig-zag lines  etc.
Harappan Pottery

2 . Copper Objects

  • Harappan civilisation was a ‘Bronze Age civilisation’ and Harappans knew how to make copper and bronze tools. They did not have the knowledge of iron.
  • Harappans used pure copper as well as  copper alloyed  with Arsenic , Tin or Nickel .
  • Artefacts include vessels , spears, knives, short swords, mirrors , rings & bangles etc.
  • With time %age of bronze increases.

Side Topic : Dancing Girl

  • Most of metal objects found are Utilitarian .
  • Most important Non-Utilitarian Copper Object excavated from Harappan Civilization is Dancing Girl found at Mohenjodaro .
  • It was made using   LOST WAX TECHNIQUE  .
  • Features of Dancing Girl
    • She is standing in Tribhanga posture .
    • She is naked .
    • She is wearing a necklace, 24-25 bangles in left arm & just 4 on right arm .
  • John Marshall called it DANCING GIRL (thought her to be equivalent of Nautch Girl dancing on music) . Although name struck , but she might not have been dancing at all .
Dancing Girl

3 . Seals

  • Use of seals was to facilitate long distance communication. They might have been used
    • For stamping on bag’s rope knot .
    • Insignia / images on seal conveyed the identity of sender.
  • Seals were square or rectangular .
  • Average size of square seal was 2.54 cm  .
  • Material used  –  Steatite  
  • Carvings are in intaglio ie sunken engravings with impression appearing in relief
  • Motifs on seals include elephant, tiger, humped bull, rhinoceros , one horned  unicorn etc.
  • Most seals have short inscription.     The longest inscription has about twenty six signs.
Seals of Harappan Civilsation

4 . Beads and Bangle making

  • This craft was known in earlier cultures too but Harappans  used new materials and better techniques 


  • Material used included Steatite, Carnelian , Lapis Lazuli ,etc.
  • Harappan long barrel cylinder carnelian  beads were  so beautiful that they are found in royal burials of Mesopotamia.
  • Main centres of Bead making were  Chanhudaro & Lothal . Bead making tradition in Gujarat today give us clue on how Harappan craftsmen might have made beads
Carnelian Beads


  • Bangles were often made from conch shell .
  • Nageshwar (near Jamnagar) and Balakot , situated near the coast, were  exclusively devoted to Bangle making from shell .
  • Dancing girl found at Mohenjo-Daro is shown wearing bangles in large numbers .
Bangles of Harappan Civilisation

Water Management System

Harappan sewage & drainage was far more advanced than any other  found in contemporary urban sites in the Middle East.

Sewage  System

  • Every house was connected to street drains.
  • Main channels  was made of bricks set in mortar and was covered with loose bricks that could be removed for cleaning.
  • House drains emptied into cesspit where solid matter settled and waste water flowed into street drains

Water Management in various cities

Mohenjodaro Almost all houses had private wells (700 wells found in city).
– It also had the Great Bath  .
Lothal It had port  with a dockyard .
Dholavira – System of water management was architectural marvel .
– Two seasonal streams – Manhar and Mansar – was dammed and diverted to the large reservoirs within the city walls . It had  16 water reservoirs  covering as much as 36 % of the walled area. 
Shortughai – Canal for irrigation brought water from nearby Kokcha river .
The Great Bath (Mohenjo daro) 
Water Wells (Lothal)


  • Harappans were producing enough food to sustain urban population which was engaged in activities other than agriculture. Their subsistence base was wide and diverse as it was situated on alluvial plains , mountains , plateaus & sea coasts .
  • Today the rainfall in Sindh is about 15 cm, but in the fourth century BCE , one of the historians of Alexander informs us, that Sindh was a fertile part of India. In earlier times, the Indus region had more natural vegetation which contributed to rainfall. Along with that , annual inundation of Indus made the region very fertile. Just as the Nile created Egypt and ​supported its people, so too the Indus created Sindh and fed its people
  • Crops : Harappans cultivated diverse crops such as
    • Wheat
    • Barley
    • Lentil
    • Chickpea
    • Sesame
    • various millets
    • Note : although rice husk has been found at sites like Rangpur but it wasn’t the main crop of Harappan civilisation.
  • Cotton : Cotton was cultivated in Harappan civilisation . Following evidences prove this fact
    • Figurines wearing clothes (eg : Priest King, Mother Goddess).
    • Mesopotamian texts state that cotton was important import from Meluha .
  • Ploughing :  Harappans used ploughs. They ploughed the land and then sowed the seeds increasing the agricultural output. Ploughed fields have been found at Kalibangan. Terracotta models of the plough have been found at at Banawali (Haryana).
  • Irrigation : Most Harappan sites are located in semi-arid lands, where irrigation was probably required for agriculture. Harappans built embankments and dams for irrigation. For example :-
    • Irrigation canals have been found at Shortughai .
    • Water drawn from wells was also used for irrigation.
    • Water reservoirs found in Dholavira (Gujarat).

Animal Domestication

  • Animals were domesticated by the Harappans for meat, milk and draught purposes.
  • They domesticated  sheep, goat, buffalo , fowl etc.
  • They also ate fish . In states like Gujarat, Molluscs were widely consumed. Marine catfish bones have been found at Harappa showing coastal community traded in dried fish  .
  • Evidence from seals show region also housed humped bulls, rhinoceros, ibexes , boar, deer and gharial .
  • Issue of Horse is controversial
    • Horse remains have been reported from  Harappa , Lothal, Surkotda & Kalibangan . But analysis of bones is questioned by other scholars .  
    • In any case, the Harappan culture was not horse-centered. Representation of horse has not been found  on seals or pottery .
    • For UPSC exam, we can say that horse was not known to them.

Trade and Exchange

  • Harappans did not use metal money, and in all probability carried exchanges through a barter system.
  • Two types of trade was going on
External Trade With Mesopotamia & Persian Gulf
Internal Trade Between different Harappan sites and various other cultures of India .

External Trade

  • Evidences showing External Trade are as follows
    1. Harappan seals and materials  found in the Sumerian and Mesopotamian sites as well as  in Oman, Bahrain and Iran.
    2. Mesopotamian  inscriptions mention the trade between Mesopotamia and Harappans. The mention of “Meluha” in the Mesopotamian  inscriptions refers to the Indus region.
  • Important exports were
    • Carnelian beads – found even in Mesopotamian Royal Graves
    • Textile – Mesopotamian Records of King Sargon mention this
    • Ivory & Ivory objects 
    • Lapis Lazuli,Gold, Silver , copper, tortoiseshell , chicken like bird
  • Import imports were
    • Fish, grain , wool, woollen garments & silver from Mesopotamia

Internal Trade

  • Harappans also interacted with various regions of India and acquired raw materials and processed them.
  • These regions were as follows
Copper Khetri deposits in Rajasthan
Tin Tosam area of Haryana
Gold Kolar mines of Karnataka
Most semi precious stones except Lapis Lazuli Gujarat
Lapis Lazuli Shortughai in Afghanistan 

Weights and Measures

  • Harappans had developed proper weights and measures. Since they were involved in commercial transactions, they needed standard measures.
  • Cubical weights made of chert, chalcedony, black stone etc. have been found at excavated sites.
  • Weights exhibit a binary system. The ratio of weight is doubled as 1:2:4:8:16:32.
  • They also used a measuring scale in which one inch was around 1.75 cm. Sticks inscribed with measure marks have been found, and one of these is made of bronze.

Faiths and Belief System

Harappan people had wide faiths and belief systems.

1 . Nature worship

  • Harappan seals, sealings, amulets & copper tablets depict number of trees , plants & animals . Some might have cultic significance as well and these include
    • Pipal (Ficus Religosa) 
    • Bull which is symbol of male virility . Seal from Chanhu-daro depict a bull bison with erect penis, fecundating a supine human figure. 
    • One horned animal probably Unicorn.
    • Composite animals like Tiger-Human. Conception of composite gods like Narsimha can be traced back to this .

2 . Mother Goddess

  • Worship of female goddesses is historically associated with fertility  .
  • Mother Goddess is slim female with  fan shaped headdress & wearing short skirt . She is heavily ornamented with necklaces and  earrings. 
The Mother Goddess

3 . Proto Shiva

  • Harappans also worshipped male god represented on  seal discovered at Mohenjodaro known as Pashupati Seal. The god is surrounded by an elephant, a tiger, a rhinoceros, and below his throne there is a buffalo, and at his feet two deer.
  • Note : It resembles with Shiva who is Mahayogi (the great yogi) & Pashupati( lord of animals)
Pashupati Seal

4 . Priest King

  • Found at Mohenjo Daro known as Priest king
  • He was called Priest King because archaeologists were familiar with Mesopotamian history and its “priest-kings” .
Priest King

5 . Fire Alters

  • Citadel at Kalibangan consists of  fire alters where offerings were made into fire.
  • Fire Alters have also been reported at Banawali, Lothal, Amri & Rakhigarhi .
  • Fire ritual was central to Vedic religion . These evidences indicate that Aryans might have adopted this from Harappans when they came & settled down in these areas .

6 . The Great Bath

  • The Great Bath found at Mohenjodaro might have  religious significance as well.
  • The Great Bath was a large rectangular tank with two staircases  on the north and south leading into the tank. There were rooms on three sides, in one of which was a large well. Water from the tank flowed into Great Bath . Across  a lane to the north lay a smaller building with eight bathrooms. The uniqueness of the structure and fact that it was found on citadel  led scholars to suggest that it was meant for some kind of a special ritual bath.
The Great Bath

Burial Systems

  • Harappans buried the dead.
  • The Harappan burials have grave goods in the form of pottery, ornaments, jewellery, copper mirrors and beads. This suggest their belief in an afterlife.
  • Compared with other civilisations, it can be said that on the whole, it appears that the Harappans did not believe in burying precious things with the dead.
  • Note : Although Harappans buried their dead but Harappan civilisation hasn’t yielded a monument for the dead which could equal Pyramids of Egypt or Royal Cemetery of  Ur .

Nature of Writing

  • The biggest mystery  about the Harappans is which language(s) they spoke.
  • Harappan script consists of 400-450 basic signs.
  • Harappan script was pictographic in nature (i.e. picture used to represent a word).   
  • It was written from right to left corroborated by the fact that some seals show a wider spacing on the right and cramping on the left. 
  • Although larger inscriptions were rare. In large inscriptions , they followed Boustrophedon Style (i.e. first line in right to left , then next line in left to right)
  • Nature of Language 
    • Some scholars argue that Harappan script and language belonged to Dravidian family . Father Heras  was strong advocate of this view . He argued that Brahui , language  still spoken in this region , belongs to Dravidian family .
    • Others historians believe that  it belonged to Indo-Aryan languages .
    • Yet others believe that it belonged to the Sumerian language.
  • Harappan script has not been deciphered yet .  Mortimer Wheeler writes the conditions requisite for the interpretation of the script are (1) bilingual inscriptions with known language and (2) long inscription with significant recurrent features . Both these conditions aren’t present in Harappan inscriptions.

Nature of Polity

State was present in Harappan Civilisation . Following things prove the existence of state

  1. Uniform culture over such a large area wasn’t possible without central authority.
  2. Granaries at Mohenjo-Daro and Harappa where surplus was collected and stored , most probably by the rulers.
  3. Control of labour  as indicated by elaborate drainage system, citadels and public buildings which were made by mobilising labour on large scale.   
  4. Standardisation  , site specialisation  and establishment of trading outpost at Shortughai .
  5. Common system of writing across wide area .
  6. FORTIFICATIONS  especially imposing ones like Dholavira, Harappa and Mohenjo-Daro.
  7. We have no clear idea of an organized force or standing army, but a heap of sling stones and the depiction of a soldier on a potsherd at Surkotda may suggest a standing army.
  8. Harappan civilisation lasted for 700 years &  artefacts continued unaltered which suggests strong political stability . 

Side Topic : A Priest King 

  • In ancient Mesopotamian & Egyptian civilisations,  rulers were portrayed extensively in stone reliefs & sculptures to proclaim their power . But Harappan case is strikingly different because here no such things have been found .
  • Taking view from Egypt & Meso Civilisation , stone bust of Male found at Mohenjodaro is given label of  Priest King . However whether he represent priest or king or both is far from certain.
Priest King

Contemporary Cultures of the Harappan Civilisation

  • While the Indus Civilisation was flourishing in the north-western part of India, several cultures were developing in different parts of India..


  • Kashmir was under Neolithic culture during this phase. Sites like Burzahom belong to this phase.

Deccan and Western India

  • Chalcolithic cultures were prevalent in Deccan and western India.
  • Chalcolithic culture in the form of Ganeshwar-Jodhpura culture was prevalent in Rajasthan. Harappans imported copper from here (Khetri copper mines).

South India

  • Kerala and Sri Lanka were still under  hunting and gathering phase.
  • Northern part of South India, i.e. the Karnataka and Andhra region, had Neolithic cultures, engaged in pastoralism and plough agriculture.
  • Harappans used to send expeditions to South India to import gold especially from region surrounding Kolar gold fields.

Morphology of Harappan Cities

Harappan Civilisation

1 . Mohenjo Daro

Region Sindh (Pakistan)
River Indus
Excavator RD Banerji (1922)
Important points It was the second site to be discovered after Harappa.
It was spread over area of 125 Hectare  and at it’s peak , used to house population of around 35,000.
Important things excavated here includes
1. Great Bath
2. College of Priests
3. Granary
4. Large Pillared Hall
5. Dancing Girl
6. Pashupati Seal
7. Superficial evidence of horse (although refuted by many historians)
8. Model of ship/large boat

Problem  – water levels in Mohenjodaro has risen high . As a result, it is  not possible to determine whether early Harappan levels were present  

2. Harappa

Region Punjab (Pakistan)
River Ravi
Excavator Rai Bahadur Dayaram Sahni (1921)
Important points It was the first site to be discovered .
Important things excavated here include
1. 6 Granaries
2. Cemetery H with urn-burials
3. Large number of wells
4. All other Harappan features like Citadel, sewage system, fortification etc.
Issue : most of the citadel buildings was already destroyed (bricks used in railways &  robbed by brick  robbers). Clear profile of main citadel is lacking  .

3. Kalibangan

Region Ganganagar district of Rajasthan (India)
River Ghaggar
Excavator Amalanand Ghosh (1953) and BK Thakur (1961)
Important points – Get its name from the thick cluster of black bangles lying all over  mounds .
Important things excavated here include
1. Fire Alters – Interpreted as sacrificial pits 
2. Ploughed fields – first of its kind in history 
3. Black bangles
It wasn’t as well developed as Mohenjodaro and Harappa. Lower town didn’t have well developed drainage system.
It survived till 1800 BCE when Ghaggar river completely dried up 

4. Lothal

Region Near  Khambat in Gujarat
River Between Sabarmati river & its tributary Bhogavo
Excavator SR Rao (1957)
Important points It was a sea-port .
Although , not big in size but it was economically important .
Important things excavated here include
1. Huge basin / dockyard to dock ships .
2. Evidence of rice husk .
3. Evidence of double burial i.e. man and woman buried together.
4. Fire altars
5. Bead factory

5. Dholavira

Region Kadir Island in Gujarat (Rann of Kutch)
Excavator JP Joshi (1990)
Important point It was a large city spanned over 160 hectares.
It is one of the newest site to be excavated.
Important things excavated here includes
1. Extensive use of stone (instead of bricks).
2. 16 water reservoirs within the walls of city covering 36% of walled area.
3. Largest number of inscriptions have been found here.

6. Chanhudaro

Region Near Mohenjodaro in Sind (Pakistan)
River Indus
Excavator NG Mazumdar (1931)
Important point It is a small settlement spread in just 7 hectares .
Important things excavated here includes
1. It was important craft centre devoted to bead-making, shell-cutting, metal-working, seal-making and weight-making. 
2. It is the only Harappan site without fortifications.  

7. Rakhigarhi

Region Hissar district of Haryana (India)
River Ghaggar
Important points It was large city  spread over 350 hectares.
Important things excavated here includes
1. Fire altars like those found at Kalibangan.
2. Redware similar to Dancing Girl.  

8. Banawali

Region Hissar district of Haryana (India)
River Rangoi
Excavator RS Bist (1970s)
Important points Important things excavated here includes
1. Barley of high quality.
2. Fire altars
3. Terracotta model of plough  

9. Ropar

Region Punjab (India)
River Sutlej
Excavator YD Sharma (1955)
Important points It was a small site.
Important things excavated here includes
1. Harappan seals
2. Cemetery where dead were buried.
3. Burial where man was buried with dog.  

10 . Rangpur

Region Near Lothal in Gujarat
River Madar
Excavator MS Vatsa (1931)
Important point Rice husk found here is important finding .

11. Surkotda

Region Gujarat
Excavator JP Joshi
Important point Bones of horse have been excavated from this site.

12. Suktagendor

Region Baluchistan (Pakistan) on Iran-Pakistan border
River Dasht
Excavator A Stein
Important point It is the western-most site of Harappan civilization .
Port town with trade links with Mesopotamia and Sumeria.

13. Shortughai

Region North-East Afghanistan
River Oxus and Kokcha
Important points It was small site (2 ha).
It was an isolated Harappan site .
Excavations include Pottery with Harappan Designs, Toy carts , Lapis Lazuli , Carnelian , shell bangles  etc.
Ploughed field covered with flax in area unsuitable for farming ( dry farming practiced here) .
Small irrigation canals drawing water from Kokcha .  
Reason for making an isolated site 1. Lapis Lazuli mines nearby
2. Second Possibility –  Tin mines of Afghanistan
3. Third Possibility –  role to play in Camel Trade 

The decline of Harappan Civilization

It was a gradual decline

  • Roughly around 1900 BCE, there is a visible change in the material record.
    • Population seems to have either perished or moved away . Number of settlements in Core Harappan areas decreased but number of settlements in the outlying areas of Gujarat, East Punjab, Haryana and upper Doab increased (explained by the emigration of people from the core regions of Harappan Civilisation to outlying areas) .
    • In few Harappan sites that continued to be occupied after 1900 BCE, Material culture underwent a change – a far smaller, and that too more locally exploited raw materials was utilized . There was disappearance of  weights, seals, special beads, writing, long-distance trade, and craft specialisation .

Overall, artefacts and settlements indicate a rural way of life in what are called “Late Harappan”

  • Mesopotamian literature stops referring to Meluha by the end of 1900 BCE . 

Many theories are given for the decline of Harappan Civilisation by various scholars

Reason 1: Aryan Invasion

  • Theory was given by Ramaprasad Chanda in 1926 but elaborated by Mortimer Wheeler .
  • References to various kinds of forts of Dasas & Dasyus,  attacks on fortified cities & epithet Puramdara (fort destroyer) given to Indra reflect invasion of Aryans on Harappan cities .
  • Rig Veda mentions a place called Hariyupiya located on the bank of  Ravi where Aryans fought a battle . Name of the place sounds very similar to that of Harappa. Based on this, Wheeler concluded that it was the Aryan invaders who destroyed the city. 

Arguments against this theory

  • Historians like George Dale & BB Lal argue that  Rig Veda is a religious text of uncertain date & taking it as evidence on face value is not correct .
  • Harappans & Aryans are unlikely to have met each other. Harappan Civilisation declined around 1900 BCE whereas Aryans arrived in India around 1500 BCE.
  • No evidences of military assault have been found . Earlier Deadman Lane Theory of John Marshall has been discarded . Deadman lane is a street in Mohenjodaro where dead-bodies of 17 people were excavated. But later it was found that they didn’t belong to same period.  No bodies of warriors clad in armour and surrounded by the weapons of war have been found. The citadel, the only fortified part of the city, yielded no evidence of a final defence.

Reason 2 : Fall in Mesopotamian Trade

  • There was sudden end of long distance land and sea trade with Mesopotamia. Trade in luxurious items like lapis lazuli, beads etc. passed through Elam (located on eastern border of Mesopotamia) . In 2000 BC, Elam emerged as powerful state impacting Harappan exports to Mesopotamia and Mesopotamian Imports including tin to Harappa. Decline of trade led to decline of Harappan Civilisation as well.

Reason 3 : Raike’s Hypothesis – Floods 

  • RL Raikes was  famous hydrologist .
  • He believes that the Harappan civilization declined because of catastrophic flooding. But such flooding which could drown buildings 30 feet was not  result of normal flooding .  Geomorphologically ,  the Indus area is a disturbed seismic zone. Earthquakes might have raised the level of the flood plains of the lower Indus river along an axis roughly at right angles . This led to the ponding of the waters of the river Indus.

Reason 4 : Shifting away of Indus

  • Indus was  unstable river system which altered its course many times . 
  • River Indus shifted about 30 miles away from Mohenjodaro. People deserted the area because they were starved of water
  • But this cannot explain the decline of the Harappan civilization in totality. At best, it can explains the desertion of Mohenjodaro. 

Reason 5 : Drying up of Ghaggar

  • Ghaggar-Hakra area represented one of the core regions of Harappan  civilization. Ghaggar was a mighty stream . Rivers Sutlej and Yamuna used to be the tributaries of this river. Because of some tectonic disturbances, the Sutlej stream was captured by the Indus river and the Yamuna shifted east to join the Ganges. This kind of change in the river regime, which left the Ghaggar waterless, would have catastrophic implication for the towns located in this area.

Reason 6 : Increased Aridity

  • This theory was given by DP Aggarwal & Sood .
  • Basing their conclusions on the studies conducted in the U.S.A., Australia and Rajasthan , they have shown that there was an increase in the arid conditions by the middle of the second millennium B.C. In semi-arid regions like those of the Harappa, even a minor reduction in moisture and water availability could spell disaster. It would affect agricultural production which in turn would put the city economies under stress.

Reason 7 : Ecological Imbalance

  • “Harappans were over-exploiting their environment through over-cultivation, over-grazing, and excessive cutting of trees for fuel and farming. This would have resulted in decreasing soil fertility, floods, and increasing soil salinity.”
  • Deforestation was carried out on large scale for fuel to make bricks. Deforestation also reduced the rainfall in the area.
  • To sustain the city population, agriculture was to be done on large scale decreasing the soil fertility . Exhaustion of the soil may have diminished cereal production and starved the urban people.
  • Gradual movement away to other areas was already happening so as to reduce the pressure on the limited land. Harappan communities moved towards Gujarat and eastern areas, away from the Indus.

Localisation Phase

  • Debate on Terminology : Late Harappan vs Post Harappan
    • Those historians who are in favour of decline of Harappan Civilisation prefer to call it Post Harappan Civilisation .
    • Whereas those who argue for Transformation of Harappan Civilisation call it Late Harappan. Later Harappan terminology is preferred by most historians now a days.
  • Scholars working on the Indus civilization no longer look for the causes of its decline  because of the fact that the scholars who studied the Harappan civilization right upto the 1960s believed that the collapse of the civilization was sudden. It was towards the end of the 1960s  that scholars like Malik and Possehl focused their attention on various aspects of continuity of  Harappan tradition
  • Archaeologically speaking some changes are observable-
    • Some of the settlements were abandoned .
    • Tradition of uniform writing, seals, weights and pottery was lost.
    • Objects showing intensive interaction among the far flung settlements were lost.

In other words the activities associated with city-centred economies were given up.

  • But there was continuity as well.
  • Three prominent cultures which came after Mature Harappan Phase declined & Localisation Phase started were
    1. Cemetery H
    2. Jhukar/Late Kulli
    3. Rangpur 
Late Phase of Indus Valley  Civilisation

1 . Cemetery H

  • Cemetery H is a site in Harappa . Here, large Urn Burials dateable to Post Urban Culture were found.
  • Dated from 1900-1300 BCE.
  • Cemetery H Culture had Black on Red pottery with similar shapes of pottery as that of Mature Harappan Culture  , although motifs on pottery differed .

2. Late Kulli / Jhukar

  • Found in Southern Sindh, ChanhuDaro , Jhukar etc .
  • Some of typical Harappan elements like Stamp Seals continued but it was made of Terracotta or Faience .
  • They were still staying in brick houses but they gave up the planned lay out.

3. Rangpur

  • Found in Gujarat . Main sites were Rangpur & Lothal & Prabhas Patan (Somnath) .
  • There were fewer number of sites and settlements were smaller.
  • They were using ‘Lustrous Redware’ characterised by bright & burnished slipped surface.

This marks the end of our article on ‘Harappan Civilisation’ .

Introduction to Drainage System

Introduction to Drainage System

This article deals with ‘Introduction to Drainage System ’ This is part of our series on ‘Geography’ which is important pillar of GS-1 syllabus . For more articles , you can click here


Channel A defined zone which has a certain depth in which there is continuous flow of water under normal conditions.
Drainage The flow of water in well defined channel is known as Drainage .  
Drainage System The network of channels which drains a region is known as Drainage System.  
Drainage Basin The drainage basin is the area drained by the river and it’s tributaries.  
Catchment / Catchment Area The river drains the water collected from a specific area. This area is known as the Catchment Area or Catchment .  
Water Divide / Watershed Watershed divides the one catchment area from other catchment area. It is also known as Water divide.  
River Regime The seasonal flow of water in a river is known as River regime. Hence, if the water availability is uniform around the year, it is known as Uniform River Regime. Whereas rivers where the water is seasonal, it is known as Non-uniform River Regime. Such seasonal rivers are also known as Ephemeral rivers.  
Inland Drainage Rivers which don’t reach the ocean . In desert or arid regions, such rivers lead to the formation of Salt Lakes or Playa Lakes .

Types of drainage pattern

Geometric system of streams in a region is determined by.

1. Slope 3. Hydraulic Variability.
2. Difference in rock resistance to erosion 4. Structural  control of Landscape.

1 . Antecedent or Inconsequent

  • Antecedent drainage pattern is one in which a  part of a river slope and the surrounding area gets uplifted but the river sticks to its original slope, cutting through the uplifted portion forming deep gorges
  • Eg : Those rivers which existed before upheaval of Himalayas like Indus, Satluj, Ganga, Brahmaputra, Arun, Tista etc. . These rivers originates in Tibet and cut across Himalayas forming deep gorges.

2. Consequent

  • Rivers which flow in direction of slope.
  • Most peninsular rivers like Godavari, Krishna, Cauvery etc.

3. Superimposed /Superinduced

  • In this, drainage pattern exhibits discordance with underlying rock because it originally developed on a cover of  rocks that has now disappeared .
  • The river has enough erosive power that it can cut through any kind of bedrock, maintaining its former drainage pattern.
  • Damodar, Subarnarekha, Chambal, Banas etc.

4. Dendritic

  • Drainage in which branches give appearance of tree .
  • Dendritic pattern develops in a terrain which has uniform lithology, and where faulting and jointing are insignificant.
  • Most rivers of Indo-Gangetic plain show Dendritic drainage pattern.
Introduction to Drainage System

5. Trellis

  • Rectangular pattern where two sets of structural control occur at right angle.
  • Eg : Drainage pattern of Singhbhum(Chotanagpur).
Trellis Drainage Pattern

6. Obsequent

  • In Obsequent drainage pattern, tributaries intend to flow upstream instead of downstream.
  • Eg : Arun river which is tributary of Kosi & Suru of Indus.

7. Rectangular

  • The main stream bends at right angles and the tributaries join at right angles creating rectangular patterns.
  • It differs from trellis as it is more irregular.
  • It is found in Vindhyan mountains.
Rectangular Drainage Pattern

8. Radial

  • Outflowing rivers , away from central point.
  • Radial pattern tends to develop on flanks of a dome or volcanic cone.
  • Rivers originating from Amarkantak hills , Chotanagpur Plateau & Mikir hills .
Radial Drainage Pattern

9. Annular

  • Subsequent stream flows curving prior to joining the consequent stream.
  • It is not very common . In India, it is found in Nilgiri hills of Tamil Nadu & Kerala.

10 . Parallel

  • Rivers flow parallel to each other. In this, rivers will not meet but keep on running parallel.
  • Small rivers originating in western ghats & discharging water in Arabian sea.

11. Deranged

  • Uncoordinated pattern of drainage, characteristic of a region recently vacated by ice sheet & has  not adjusted according to solid rocks underlying.
  • Eg : Drainage pattern found in glaciated valleys of Karakoram.
Deranged Drainage Pattern

Indian rivers

There are various ways to classify Indian Rivers.

1 . On basis of Discharge of Water

  • All Indian rivers discharge water either in Arabian Sea or Bay of Bengal.
  • Nearly 77%  of the drainage area consisting of the Ganga, the Brahmaputra, the Mahanadi, the Krishna, etc. is oriented towards the Bay of Bengal while 23% comprising the Indus, the Narmada, the Tapi, the Mahi and the Periyar systems discharge their waters in the Arabian Sea.
  • They are separated from each other through the Delhi ridge, the Aravallis and the Sahyadri.
  • It should be mentioned here that the over 90% of the water carried by the Indian rivers is drained into the Bay of Bengal; the rest is drained into the Arabian Sea or forms inland drainage.

2. On Basis of Size of Watershed

Major River Basins Catchment area of more than 20,000 sq. km 14
Medium River Basins 2,000 to 20,000 sq. km 44
Minor River Basins Less than 2,000 sq. km 55

Ranking (catchment area)

Ganga Mahanadi
Indus Narmada
Godavari Kaveri
Krishna Tapi
Brahmaputra Pennar

3. On Basis of Mode of Origin

  1. Northern/Himalayan Rivers
  2. Peninsular Rivers.
    • Although it has the problem of including  Chambal,  Betwa, Son, etc. which are much older in age and origin. than other rivers that have their origin in the Himalayas, it is the most accepted basis of classification.

This marks the end of our article on Introduction to Drainage System. For other articles on geography, CLICK HERE.

Digital Banking

Digital Banking

This article deals with ‘Digital Banking / Cashless Economy.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .

More Cash in Circulation

  • India uses too much cash for transactions . Ratio of Cash to GDP is one of the highest in the world
    • India = 12.4% (2014)
    • Whereas – China = 9.4% or Brazil =  4%

Pros and Cons of Cashless Economy

Pros of Cashless Economy

  • It will be very difficult to evade taxes as all transactions can be tracked in cashless economy . Money laundering, black money and terrorist financing can be easily controlled .
  • No fear of physical theft : In Sweden , where 50%  transactions have gone cashless robberies have fallen to 30 years low because people don’t have any cash with them .
  • Cash transactions in small denominations can happen easily  . One can pay even single paisa (or cent)  .
  • No issue of counterfeit currency and wearing and tearing of currency notes  .
  • Working fine in Sweden & Norway where 50% transactions have gone cashless.
  • Ratan Watal Committee (in December2016) quoted that the dependency on cash costs the country about ₹1 Lakh crore on account of cost of printing new currency, operating currency chests, maintaining supply to ATM networks etc.
  • If small vendors start to take payment via digital means in Bank Accounts, their credit history will develop and he can use this to get credit from institutional lenders .

Cons of Cashless Economy

  • Extreme Surveillance – every payment you make will be traceable. The power this would hand banks & governments is enormous and the potential scope for Orwellian levels of surveillance is terrifying.
  • It can lead to exclusion of segments of the population who are slow to embrace new technologies especially the elderly.
  • Problem of electronic frauds increases  and whole system can be hacked .
  • Cashlessness may produce a peculiar human problem as people are sentimental about coins and notes.
  • For payment to happen cashlessly , infrastructure is required at point of sale destinations which small business cant afford.
  • Costs of digital payment, ultimately, are borne by consumers even when they are charged from producers or vendors. Charges can range from 0.1 per cent to as much as 4 per cent of the value of the transaction.

International Examples

In Kenya, M-PESA in partnership with Vodafone’s local operator Safaricom has ushered Cashless Revolution.

Digital Banking

Problems in adoption of Digital Payment in India

As seen by Chandrababu Naidu Committee & Ratan Watal Committee , problems associated with Digital Payment in India are

1 . Lesser Points of Sale

  • India has 160 ATMs per million (UK = 1000 / million) .
  • India has 1000 Point of Sale (PoS) per million (UK = 30,000 / million) .

2. MDR Issue

  • MDR = Merchant Discount Rate
  • Banks charge  around 2% from Merchant for providing Cashless Payment Services. Due to this , profit margin of merchants decrease . This restrict adoption of digital payment by Merchants .

3. KYC norms for Point of Sale Devices

  • Vendors cant buy Point of Sale devices as they don’t have any permanent address .

4. Interoperability

  • There is no interoperability between different payment systems (Eg : PayTM to FreeCharge) and also between different Financial Institutions (Eg: SBI to PayTM) .

5. Regulatory Problems

  • Banking Ombudsman doesn’t have required powers  to deal with Internet Banking Frauds.
  • IT Act is not comprehensive enough to deal with such financial frauds.

6. Government doesn’t act as Role Model

  • Although government is promoting Cashless economy but one cant pay taxes via mobile wallets like PayTM and bidding fees for various e-Tenders is to be paid in Cash (only)  . Hence, government doesn’t act as role-model.

7. Low Digital Financial Literacy

  • People aren’t aware enough that they can handle cashless system of payment .

8. Behavioural Issue

  • Changing behaviour to use cashless transactions is a complex process .

Issue : Interoperability

  • Interoperability is the ability of customers to transact across commercially and technically independent payment platforms.
  • Due to Legal  complications under Payment & settlement system act 2007,  we don’t have full interoperability ie
    • we can’t transfer money between one wallet to another (cant transfer money from Paytm to Phonepe) .
    • can’t use wallet to pay all types of taxes, fees, insurance premiums etc  .
  • This is an obstacle to ‘cashless-economy’.

In 2018, RBI issued guidelines for interoperability with Know Your Customer check, customer grievances redressal  mechanism etc. so that transactions can be made between different platforms.

Issue analysis : Regulation over Payment Settlement

Digital Banking
  • 1998: Banking Reforms / Narsimham-II Committee suggested regulatory framework for e- banking, card payment etc.
  • 2007: Payment & Settlement Systems Act enacted in accordance with Narsimha, II under which  RBI supervises e-banking, card payment and other digital money related issues through Board for Regulation and Supervision of Payment and Settlement Systems (BPSS).
  • All Payment system providers have to register with RBI’s BPSS – Whether bank, non-bank, wallet-PPI etc.
  • 2016: Ratan Watal Committee on digital payment suggested replacing this BPSS with a Payments Regulatory Board (PRB) in RBI, to look after Interoperability, Consumer protection, Innovation, R&D in digital payments (as BPSS looks after only Payment and Settlement).
  • 2018: RBI opposed formation of Payments Regulatory Board due to differences with Government over issue of who should be Chairman, how many members should be from Government side etc.

RBI made Ombudsman Scheme for Digital Transactions (OSDT) in 2019 with following functions

  • To look into matters of Digital Payment like Consumer Protection  .
  • Consumer can make free complaint for matters upto Rs 20 lakh against Mobile Wallets, Payment Payment Instruments (PPI) and other digital transactions.
  • It can charge penalty of upto Rs 1 lakh to be paid to victim for his mental agony , loss of time etc.

Issue analysis  : Merchant Discount Rate

  • MDR is the fee that a merchant must pay to a bank for every credit / debit card transaction.
  • MDR hurts merchants’ profit margin, discourages them from adopting Point of Sale terminals, digital payment system.
  • 2017-18: RBI put ceilings on MDR fees to encourage digital economy.
  • WEF 1/1/18: Government of India started 100 % MDR-subsidy on payments made via Debit card, BHIM or Aadhar enabled payment system for bills upto Rs.2,000. Scheme was valid for 2 years. This will encourage digital payments ecosystem.
  • Budget 2019 : No MDR will be charged from firm whose annual turnover is less than Rs 50 crore . RBI and Bank will absorb this burden for not handling so much money.
Merchant Discount Rate

Developments Related to Cashless/Less Cash Economy

1 . Committees

1.1 Ratan Watal Committee

  • Formed in Dec 2016.
  • To suggest Medium Term Recommendations to strengthen digital payment eco-system in India .


  • Separate Regulator for Digital Payments under RBI known as Payments Regulatory Board .
  • Envisaged a prominent role for Aadhaar as the primary identification for (KYC) purposes  .
  • Government departments should levy a cash-handling charge to discourage cash transactions.
  • Give incentives like discounts to consumers to make cashless payments  .
  • It had also suggested interoperability between banks and non-bank digital payment gateways .
  • Rewards for government departments, state governments, districts and Panchayats for promoting  digital payments.
  • Create a fund proposed as DIPAYAN from savings generated from cash-less transactions to expand digital payments.
  • Reduce or eliminate  import duty on import of ATMs & Point of Sale machines  .

1.2 Chandra Babu Naidu Committee

  • Formed in Nov 2016 & submitted report in Jan 2017
  • Chief Minister’s Committee to promote Digital Payment in India  by NITI Aayog.


  • Tax incentives should be given for domestic production of Point of Sale machines & ATMs .
  • Banks should charge 0% MDR from Government Bodies like Railways, Electricity etc. .
  • Develop Common QR based payment system for Vendors (led to formation of BHARAT QR).

1.3 Nandan Nilekani Committee

  • Jan 2019 : RBI appointed Nandan Nilekani Committee for suggesting ‘how to deepen the digital payments.
  • It’s main recommendations were
    1. Government should extend MDR subsidy for two more years .
    2. Give tax incentives to companies using digital payments.
    3. Reduce the taxes on devices required for digital payments .
    4. Raise awareness about BHIM-UPI .
    5. Setup Computer Emergency Response Team for Finances (CERT-Fin).
    6. Prepare area-wise ‘Digital Financial Inclusion Index’ to monitor progress.

2. Schemes

2.1 Rupay Card

  • RuPay is the Payment Gateway started by National Payment Corporation of India (NPCI) .
  • It will help in financial inclusion indirectly by decreasing the operating cost of Banks to service their customers using Debit & Credit Cards .

How Payment Gateway system work ?

Case 1 : If there is no payment gateway

  • Each bank has to separately tie up with merchants .
  • It leads to duplication of effort . 
Digital Banking

Case 2 : In presence of payment gateways

  • Each bank can tie up with payment gateway & payment gateway will tie up with merchant.
  • Banks are paying ₹300 cr per year to payment gateways   (Banks charge them from Merchants as Merchant Discount Rate (MDR) per transaction)

What Rupay will do ?

  • Rupay will  do the same work at 40% lower rates
  • Hence, User will have to pay lower Credit/ Debit card charges and Merchants will have to pay lower Merchant Discount rates to the banks.
  • Rupay is the 7th payment gateway in world .
  • 3 channel payment can be done using this :ATM, PoS(point of sale) and Online
  • They can tie up with any organisation : prepaid card by milk/ grain procurement agencies in Punjab.
  • Under Jan Dhan Scheme, Rupay Debit Card is given to the customers.

2.2. FastTag

  • FASTags are prepaid rechargeable tags  for automatic toll collection at  toll collection booths using RFID technology.
  • It helps in faster mobility by solving the issue of Jams at toll booths. Along with that it is issue in the direction of cashless economy.
  • From 15th January 2020, it shall be mandatory for all vehicles passing through tolls to have FASTags. Otherwise , vehicles have to pay double the normal rates .

2.3 NEFT System

  • Using bank, person can settle amount with other person even if he/she is having bank account in other bank. To settle these payments, NEFT (National Electronic Funds Transfer) system is used in the backend .
  • NEFT settles the net amount between banks at the interval of 30 minutes . It means , after interval of 30 minutes , it will check the  lakhs of transactions which were made between particular two banks throughout the country and will settle the remaining amount between two banks.
  • This system is operated by RBI.
  • Using this system, transactions of upto ₹10 lakhs can be made .
NEFT System

2.4 White Label ATMs

  • White Label ATMs are operated by private non-banking companies that own & operate their own brand of ATMs .
  • All the other Bank ATMs can use these White Label ATMs & get service but on nominal charge .
  • It is step towards Financial inclusion . ATM penetration will increase because of this  (present = 160/1million compared to US=  1400/1Million)
  • Eg Tata have Indicash , Muthoot Finance , Srei Infra, Vakrangee Software ,  Prizm Payments

2.5 Schemes by NPCI

NPCI is a not for profit company , made by 10 promoter banks in 2008 to provide cost-effective payment solutions for banks


NPCI is running various initiatives related to high end technology in Banking &  Payment Systems .

a. UPI

  • UPI = Unified Payment Interface
  • Started in 2016
  • It is  a technology for building digital payment apps (ie UPI is not an app but technology made by NPCI which is used by banks to make their apps) .
  • Features provided by UPI
    • Scan QR Code and pay directly to merchant’s account.
    • Link your bank account for direct transfer of money from your bank account without storing in e-wallet first. (unlike PayTM).
    • Facility of Push transaction (e.g. Sending Remittances to family).
    • Facility of Pull Transaction (e.g. Cable operator sending request for monthly bill within the app).
    • Bill sharing among friends.
  • Examples of UPI based app:  SBI Pay,  AxisPay and NPCi’s own BHIM.

b. UPI 2.0

  • Upgraded version launched in Oct 2018 with following additional features:
    1. Overdraft facility 
    2. Cash on Delivery
    3. User mandate for future date e.g. DTH 
    4. Invoice in the inbox.


  • BHIM = Bharat Interface for Money
  • It is app for ios & Android based on UPI (this is app in which UPI technology is used).
  • Made by NPCI
  • Benefits
    • No need to install multiple apps for each bank account (SBI Pay, AxisPay etc) . Single BHIM app can be used for using all  bank accounts.
    • App has 3 factor authentication system.
    • Your money stays in bank account . It is not stored in e-wallet outside bank like PayTM.  Hence, person can earn interest on his money.
    • No cards involved . Hence, no MDR or such hidden charges need to be payed.

d. Bharat QR Code

  • Started in Feb 2017
  • Bharat QR code has been developed jointly by National Payments Corporation of India (NPCI), Visa, MasterCard and  American Express under instructions from Reserve Bank of India (RBI).
  • Note – QR is two dimensional machine readable matrix. QR Code can store up to 7089 digits as compared to conventional bar codes which can store max 20 digits. 

Advantages of Bharat QR Code

  • It eliminates the need of using card swiping machines for digital payments. There is no need to have ‘Swiping Machines’ on shops. Just have QR printed & payments can be easily done via that.
  • Interoperability- Using BharatQR code, the merchants will be required to display only one QR code instead of multiple ones.
  • For buyer, there is no need to carry Card. Payment can be done via mobile.

Bharat QR


e. Aadhar Enabled Payment System  (AePS)

  • Customer simply has to tell  Aadhar number and name to the merchant or Bank Business Correspond who in return authenticate it using customer’s fingerprint .  Following this simple step, his transaction is completed.

f. Cheque Truncation System (CTS)

  • If somebody from Delhi gives Cheque of Delhi Bank Branch to person in say Chandigarh. Earlier that cheque was physically sent through post to Delhi Branch for settlement.
  • Under CTS, Scanned image of Cheque can be send to Delhi Branch and settlement can be done rapidly.

g. National Financial Switch (NFS)

  • ATM Card of one Bank can be used in other Bank too.  System that is working in the backend to make this possible is NFS .
  • NFS helps in re-routing transactions to Core Banking Solution Network of the Bank whose ATM card is being used.

h. NACH (National Automated Clearing House)

  • They help in Automated Payments which are to be paid periodically like each month or year like salaries, bills  etc. .
  • NACH is finding great attraction among Customers, Companies and Government Departments for payment of bills ,EMIs , salaries, pension etc.


  • IMPS = Immediate Payment Settlement System
  • It is available 24X7 . 
  • It is used for realtime Settlement of all  the Online  Payments  from Rs 1 to 2 lakh .
  • It is not free .  Service fee is charged on the transactions.

Side Topic : ATM security features introduced to prevent frauds

1. ATM Card Technology changed


Magnetic Technology 60s technology.
Data is stored on magnetic strip. Data can be duplicated, cloned, skimmed while swiping the card = increased chances of fraud.
So, RBI stopped such cards from 1/1/2019 using powers from Payment & Settlement Act.
EMV Technology Full form: Europay + Mastercard+ Visa 
Based on chip infrastructure with encryption.
RBI had ordered migration in 2013 => finally effective from 1/1/2019.
Two sub-types
1. EMV-Contact: cards must remain in Point of Sale (PoS) Terminal during transaction.
2. EMV-contactless cards: simply tap the card on terminal using RFID technology.
EMV Technology in ATM Cards

2. Card Tokenisation

  • When we do shopping on sites like Amazon, Flipkart etc. or pay bills using PayTM, they allow us to store our Debit or Credit Card information like Card Number, Expiry date etc. for future convenience. But this thing has security implications in case server of such company is hacked and user information is leaked.
  • To prevent such incidents, Card Tokenization has been introduced by RBI in Jan 2019
    • Tokenization = Token number is generated for a given credit/debit card.
    • Card customer gives the token number during any type of online / physical shop transaction  so that his original card number, its expiry date etc. remains hidden from the third party seller  .

Schemes for Digital Financial Literacy

1.Vitiya Shaksharta Abhiyan

  • Under MHRD
  • Encouraging students of University and Colleges to spread the message of moving towards digital payments going home to home.

2. Digishala TV Channel

  • MEITY has launched a TV channel named ‘DigiShala’
  • It is 24X7 Channel to increase Financial Literacy

Financial Inclusion

Financial Inclusion

This article deals with ‘Financial Inclusion.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .

What is Financial Inclusion ?

As defined by Rangarajan Committee on Financial Inclusion in 2008 , Financial inclusion means everyone is given access to financial services ie Banking, Credit, Insurance & Investment at affordable cost  & in appropriate time frame .

Importance of Financial Inclusion

  • Helps family to cope with unforeseen circumstances like death of breadwinner.
  • Helps in converting savings to investments which in turn helps in nation building. Japan, USA etc. have earlier followed same path.
  • Protect common people from exploitation of informal money lenders who charge exorbitant interest rate .
  • By providing good investment schemes, it can protect people from falling into traps like Ponzi Schemes like Saradha & Rose Valley Chit Fund Schemes  .
  • E – Payment : Cashless subsidies & salaries can save government ₹1 Lakh crore according to McKinley study .


  • In rural areas, there is problem of accessibility . Number of branches in rural areas are low .
  • Geographically Hilly and desert areas don’t have large bank penetration .
  • Gender : Access of women to banks is low . Women have disproportionately less number of accounts than men .
  • 55% rural Dalits borrow from money lenders at exorbitant rates .
  • MSMEs are given low value of loans compared to big industrial houses .

New steps taken by Government for Financial Inclusion

Government is very much concerned to increase the Financial Inclusion and taking various steps in this regard

1 . Committees

  • Various committees have been formed like
    • Nachiket Mor Committee : Suggested various measures like Payment Banks, Small Banks etc. .
    • Deepak Mohanty Committee for Mid Term Path to Financial Inclusion : Suggested various measures like (1)  Use USSD on simple mobiles , (2)  Scrap Interest Subvention Scheme for farmers and concentrate on Insurance instead , (3) promote Sukanya Samridhi Scheme to cultivate saving habit in girls etc. .

2. New types of Differential Banks started

  • Payment Banks : 11 Licenses given .
  • Small Banks : 10 Licenses given .

3. Schemes

  • Jan Dhan Yojana is the main one (we are going to read in detail below).

4. Digital Schemes

  • Various initiatives have been taken by the government in this regard like
    1. Introduction of Rupay Card
    2. UPI, UPI2.0 & BHIM
    3. Bharat pay

5. Small Investment Schemes

  • Launched to promote the habit of savings among the poor and  save them from Ponzi scams
  • Main schemes include
    1. Kisan Vikas Patra (doubles money in 8 year 4 months)
    2. Indira Vikas Patra
    3. Public Provident Fund
    4. Sukanya Samridhi Yojana (component of Beti Bachao, Beti Padhao): Scheme for small girl children in which money can be deposited by the parents (between Rs 250 to 1.5 lakh per annum)  till girl reaches age of 14 years and can be later withdrawn by girl when she reaches age of 18 years for her studies or marriage. Government offers higher interest than normal rates on such deposits (In 2020 : interest rate = 8.5%)

Earlier Schemes for Financial Inclusion

  • Bank Nationalisation was done in 1969 and 1980 .
  • Regional Rural Banks  & Cooperative Banks have been opened .
  • Micro Finance Institutions have been promoted by the government .
  • No frills accounts  (i.e. accounts with zero balance) scheme has been started by various banks .
  • 25%  rural bank mandate : Banks have to open 25% of their branches in rural unbanked areas.
  • Post Office Schemes to deposit money.

Jan Dhan Yojana

Works on following pillars pillars

  • Free Bank Account for every family  along with Rupay Card , 1 lakh accident insurance & 10,000 overdraft facility .
  • Banking outlet for each household within 5 km .
  • Imparting financial literacy .
  • Direct Benefit Transfer (DBT) of government schemes and subsidies through Jan Dhan Accounts  .
Financial Inclusion


  • According to Global Findex Report, 80% adults in India now have Bank accounts due to Jan Dhan Scheme .
  • It has helped in Women empowerment as large number of women accounts have been opened .
  • It has helped government in implementing Direct Benefit Transfers and prevent leakage of subsidies .
  • It has helped in breaking hold of local moneylenders .
  • + All benefits of Financial inclusion


  1. Account Dormancy (72% accounts opened under scheme are  dormant according to Microsave (think tank survey) .
  2. Account Duplication (33% duplicate accounts have been opened due to attraction of insurance & overdraft facility) .
  3. Rupay cards not given to 70% Jan Dhan Account holders . Overdraft facility cant be used without that .
  4. Jan Dhan Account Holders are being used as money mules by Hawala Agents  .
  5. Operating cost of Banks is increasing because they have to keep on servicing dormant account . It costs ₹100 to 150 / annum to banks to maintain each account .

2016 : Indian Express Report -> Bank Officials made one ₹ deposit to Jan Dhan accounts to hide their zero balance status . This shows that these can be used in money laundering too .

Priority Sector Lending

Priority Sector Lending

This article deals with ‘Priority Sector Lending .’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .


  • Basic principle in Economics = No Risk No Reward & High Risk High Reward .
  • Hence, Banks will charge high rate of interest from farmers, students , small entrepreneurs etc. or they will never get loans . To tackle this, RBI in 1980s came with PSL norms .

Who are covered under Priority Sector Lending (PSL) ?

Priority Sector Lending
  • Domestic Scheduled Commercial Bank (Public and Private) = 40%
  • Foreign Scheduled Commercial Bank (SCB) = 40%
  • RRB = 75 %
  • Small Finance Banks – 75%
  • Cooperative Banks = No Requirement

What includes PSL ?

Category % SCB  
Weaker Sections 10%  
Agriculture & Allied Activities 10%  
Marginal Farmer & Small farmer 8% – Added as new category in April 2016 .
– Earlier Agriculture and Allied Activities was given 18% but due to broad category, small & marginal farmers weren’t getting anything.  
Micro Enterprise – Khadi-Village industry 7.50%  
All other PSL categories 4.5% These include
1. Small & Medium Enterprises
2. Affordable housing loans to beneficiaries under PMAY
3. Food processing companies
4. Vermi compost, biofertilizer, seed production
5. Student-Education loans (upto Rs.10 lakh)
6. Social Infrastructure (schools, health care, drinking water, sanitation facilities)
7. Renewable Energy Projects (wind mills,  solar  etc.)  
Total PSL 40%  

Note : For Foreign Banks with less than 20 branches , 40% PSL is there  but there is no internal classification. Their consolidated PSL should be 40%.

Benefits of Priority Sector Lending

  • It helps in channelising credit to the Vulnerable Section .
  • PSL helps in Financial Inclusion .
  • PSL provides higher Social Returns on lending .
  • It helps in diversification  of Credit Portfolio of government
  • Credit Formalisation : It helps in breaking the hold of non-institutional lenders especially in rural areas.

Issues with Priority Sector Lending

  • Rising NPA : Second Narsimham Committee (1998 )  observed that  47% of all NPA  have come from PSL . It also recommended to end the system of PSL for the betterment of Banking Sector.
  • Lethargy in Lending: Most bank seem reluctant to lend to the priority sectors .
  • Not used for intended purpose especially in Agriculture sector. Loan given to farmers under PSL is to increase productivity, but it is used for unproductive purposes like marriages and other social obligations.
  • Targeting issues : Suitcase farmers benefitted instead of poor farmers .
  • Deter banks from  expanding their scale of lending as more they lend, more they will have to contribute in PSL .

What if PSL quota is not met ?

Mostly banks aren’t able to meet their PSL quotas. In this case, they have to invest the remainder in RIDF or SIDF as the case may be

Indian Banks + Foreign banks (with 20 or more branches) RIDF =Rural infra. Development fund
Managed by NABARD
For funding rural infrastructure projects  
Foreign bank with less than 20 branches. SEDF = Small Enterprises development fund
– Managed by SIDBI  

But  problem with both of the above is , money is given for long term ie around 20 years. Hence,  banks money is gone for long time which they cant use & as a result , they suffer in the meantime

To Address this, RBI came with Priority Sector Lending Certificates:-

Priority Sector Lending Certificates

  • In this arrangement, the overachieving Banks can sell their excess PSL in form of ‘certificates’ to underachieving banks without transferring the loan assets or its risk.
Priority Sector Lending Certificates
  • Four kinds of PSLCs are traded through RBI’s e-Kuber Portal, viz
    • Agriculture (PSLC-A)
    • Small and Marginal Farmers (PSLCSM)
    • Micro Enterprises (PSLC-ME)
    • General (PSLC-G). 

(Note – In future , one of the work of wholesale Banks would be to give large loans in PSL sector and then sell PSL certificates through this facility. )

Rural Banking

Rural Banking

This article deals with ‘Rural Banking.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .

Steps taken to promote Rural Banking

Various steps have been taken to penetrate Banking into Rural Areas

1 . Before Independence

  • During British Raj & initial years of independence , Banks (& insurance companies) operated in Urban Areas only .
  • Result :  villagers used to rely on money lenders , who lend money at exorbitant rates & they remained in debt & poverty .

2. After Independence

1950s Cooperative Banks/societies
1955 Birth of SBI & ICICI
1960s Bank Nationalisation (1960 & 1969)
1969 Lead Bank Scheme
1975 Regional Rural Banks (RRB) setup
1980s NABARD setup + Bank Nationalisation(2nd Round)
Early 90s Self Help Group & Bank linking
Late 90s Kisan Credit Card
Mid 2000s No Frills Account Banking Business Correspondent Interest Subvention Schemes on crop loans
Present RRB Amendment + Payment Banks

Lead Bank Scheme

  • 1960s :  Narsimham Committee recommended that responsibility of development should be given to banks & there should be integrated approach  . Hence, this  scheme was launched .
  • 1969 : State Bank of India + its subsidiaries + 14 national banks + 3 Private banks selected under this . Every district was given to specific bank making it responsible for development of Banking in that district called Lead Bank .
  • 1975: these banks were asked to setup subsidiary banks in their districts which are known as Regional Rural Banks .

Rural Infrastructure Development Fund (RIDF)

  • Started in mid 90s .
  • NABARD operates RIDF.
  • This fund provides cheap loans to state & state owned corporations so that they can complete projects related to
Medium & minor irrigation Community Irrigation Wells
Soil conservation Village Knowledge centres
Watershed Management Desalination plants in coastal areas
Flood Protection Building schools & Anganwadi centres
Forest development Building toilet blocks
Cold storage Rural roads & bridges
  • Banks who don’t meet their Priority sector lending requirements provide money to RIDF .

Regional Rural Banks

Cooperative Banks

  • Dealt below

Priority Sector Lending

Cooperative Banks

Cooperative Banks
  • Co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank.
  • These Banks on the principle of NO PROFIT & NO LOSS + ONE MEMBER ONE VOTE .
  • They are subjected to CRR & SLR requirements , however the requirements are less than commercial banks.
  • PSL requirements are not applicable on them.
  • They can be Scheduled or Non Scheduled.
  • Western Concept & came into being in beginning of 1900s.
  • Regulators : RBI, NABARD & State Registrar of Cooperative Society .
  • They were  instrumental in dismantling hegemony of money lenders in rural finance .
  • Before nationalisation drive took place in 1960s , Cooperative banks constituted 80% of institutional credit . But after nationalisation of banks, due to  stiff competition from commercial Banks , their share decreased significantly .
  • Due to One Member One Vote , they suffer from Caste Politics .
  • These banks don’t have all India presence & are present in selected regions like Gujarat, Maharashtra, Andhra Pradesh and  Tamil Nadu where cooperative movement was strong.
  • 2018 Update : RBI allowed Urban Cooperatives to voluntarily transform into Small Finance Banks, with conditions .


Type Commercial Cooperative
Banking Regulation Act Yes Yes (Since 1966)
CRR, SLR Yes Yes ( but lesser than Commercial Banks)
Who can borrow Anyone Only Members
Vote Power Proportionate to Shareholding One Member One Vote
Profit Motive Yes No Profit No Loss
Presence All India Mainly concentrated in Gujarat, Maharashtra , Andhra & TN

Rural Co-Operative Banks

Structure and Funding  of Rural Co-operative banks is as follows

Rural Co-Operative Banks


  • Rural Cooperatives suffer from huge NPAs . NPA level in these banks was around 25% in 2015 (very high) .
  • Due to 1 person 1 vote , they suffer from Casteism during voting . After that, they serve people belonging to their caste only.
  • Although SARFAESI Act powers are given to these banks but due to political backing , these banks don’t take action on defaulters.
  • Deposits are very low because rates are not competitive against Scheduled Commercial Banks & Post Office Deposits. Hence, they have to depend on NABARD Funding .
  • Large scale manipulation goes on in District Central Cooperative Banks (DCCBs) and PACS as their operations are not digitalised and they aren’t connected to Core Banking Solution . During demonetisation, District Cooperative Banks were involved in changing black money in back-date.
  • They are under the dual supervision of   RBI and the Registrar of Co-operative Societies (RCS) of the respective states . This has led  to poor supervision and control .


  • Close down PACS & form LAMPS (LArge Sized Multipurpose Society) in their place. Their operations will not be restricted to giving loans  . Apart from banking, LAMPS   will also be involved in food processing , supplying fertilisers and seeds etc. . 
  • Budget 2017 : Core Banking Solution introduced in PACS & District Central Cooperative Banks to check manipulation of accounts.

Urban Cooperative Banks (UCBs)

  • Traditionally, the area of operation of the UCBs was confined to metropolitan, urban or semi urban centres and catered to the needs of small borrowers including MSMEs, retail traders, small entrepreneurs, professionals and the salaried class. However, there is no formal restriction as such and today UCBs can conduct business in the entire district in which they are registered, including rural areas.
  • UCBs too are suffering from losses.

Reasons for losses

  • UCBs are dominated by builders and manipulators. They indulge in Zombie-lending. Eg: Punjab and Maharashtra Cooperative Bank kept on doing zombie-lending to weak company called HDIL due to corrupt nexus between directors and HDIL owners. When HDIL failed, NPA of the bank increased exponentially and depositor’s money was stuck in the bank .
  • Although, they are given powers under SARFAESI Act but officials of the bank don’t use these powers because debtors are their friends and relatives .

Steps taken

  • RBI has offered all Urban Cooperative Banks to convert to Small Finance Banks so that RBI can have more regulation over these Banks. But most of UCBs are least interested to convert because of the benefits accruing from present loopholes.
  • RBI is forcing shutdowns (reduced from 1900 (2004) to 1500 (2018)) and mergers (Maharashtra = 72 mergers between 2004 to 2018) due to frauds and scams.
Urban Cooperative Banks

Differential Banks

Differential Banks

This article deals with ‘Differential Banks (Payment Banks, Small Area Banks, Local Area Banks etc.).’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .

Differential Banks vs. Universal Banks

Difference Universal Banks Differential Banks
Branches Can open Branch anywhere: example SBI, ICICI Geographical Restrictions on branch opening for Local Area Bank (LAB), Regional Rural Banks (RRB) etc.
Money acceptance Both Time & Demand Deposits of any amount can be accepted. Restrictions are there . Eg Payment Bank : Can accept maximum amount of Rs 1 lakh only in deposit.
Give Loans to Anyone Restrictions present. Eg : Small Finance Bank, Regional Rural Bank : must give 75% to Priority Sector  . Payment Bank can’t give loans .

1. Regional Rural Banks  (RRB)

Need of RRBs

  • In 1975 , Government appointed MM Narsimham Committee to look into rural banking .
  • Observations of the Narsimham Committee were as follows :-
    • Staff of Banks has expertise in banking & financial matters but are not aware of the problems of rural people .
    • Primary Agriculture Credit Societies (PACS) have members from villages & are aware of needs and problems of the villagers .
  • As a result of this , Regional Rural Banks (RRBs) were first set up on 2 October, 1975 (only 5 in numbers) under RRB Act.

Client of RRBs

RRB provide loan & saving facilities to villagers & they include

Farmers Rural Entrepreneurs
Agricultural Labourers Cooperative societies
Rural Artisans Primary Agricultural Credit Societies


  • RRBs are sponsored by Commercial Banks
    • Sponsor Bank provides training to staff of RRB.
    • Sponsor Bank also provides initial capital to setup RRB.
  • RRB operates in selective districts & don’t have all India presence .
  • According to original RRB Act, paid up capital ( ownership) of RRBs was as follows .
Central govt State govt Sponsor Bank 
50 % 15 % 35 %
  • Priority Sector Lending (PSL) is applicable to RRB (75% loans should be PSL)   .
Regional Rural Banks

Failure of RRBs

  • Due to excessive lending towards social Banking & catering highly weaker sections , these banks started to incur huge losses by early 1980s .
  • Private & Public banks too started to operate in rural areas , which resulted in low deposits in RRBs . As a result, RRBs had to depend on NABARD for credit .
  • Debt waiver to farmers & NPA also created lot of problems .

Subsequently , following the suggestions of the Kelkar Committee, the government stopped opening new RRBs in 1987—by that time their total number stood at 196.

Steps to revive

  • RRB Amendment Act , 2015 
    • Earlier shareholding requirements  – Central : State : Sponsor Bank = 50:15:35 .
    • After Amendment – Centre, State & Sponsor Bank’s cumulative share holding can reduce upto 51% .
RRB Amendment Act , 2015
  • From 2005, amalgamation process of RRBs with their ‘Parent Banks’ was initiated so that these banks can become more viable (As of April 2020, there are only 53 RRBs ) .
  • Obligation of concessional loans has been abolished & RRBs have started to charge commercial interest rates on lending .
  • Target client restrictions have been ended & RRBs can now serve anybody.
  • Dr KC Chakrabarty Committee has recommended that CAR /CRAR for RRBs should also be 9% & to achieve this, government should recapitalise RRBs as well.

Note – Recently launched Priority Sector Lending Certificates (PSLC) are going to help them because they do a lot of PSL.

2 . Local Area Banks (LAB)

  • In 1996, Manmohan Singh (as FM) mooted to start Local Area Bank (LAB) .
  • They are licensed under Banking Regulation Act but not included in 2nd Schedule of RBI Act. 
  • Vision was  to increase financial inclusion .


  • They can operate only in Rural & Semi-Urban Areas .
  • Can operate in Max 3 geographically contiguous districts .
  • Can open only 1 branch in Urban / District city  .
  • PSL norms apply=> 40% loans should go to Priority Sector.
  • They are not Scheduled Commercial Banks because their names are not mentioned in RBI Act.

Problems with Local Area Banks

  • MSME loans given by LABs aren’t covered under Credit Guarantee Scheme of the Governments .
  • Farm loans arent covered under Interest Subvention Scheme .
  • State/Central PSUs/Institutes don’t open account in them.
  • Branch expansion heavily restricted in rural & semi-urban areas.
  • Cant get loans from RBI at Bank Rate /MSF .
  • Don’t get refinance from NABARD /SIDBI .

Operating Banks

  • 10 Licenses were given at that time & only 4 are operating presently .
  • Was in news in 2016 when applications for Small Financial Banks were called. Usha Thorat Committee  allowed them to apply for Small Finance Banks    & one out of them ie Capital Local Area Bank based in Punjab got license to open Small Finance Bank
Differential Banks

3. Payment Banks

Side Topic : Prepaid  Payment Instrument (PPI)

  • Airtel Money is an example of PPI .
  • You give them money from your account &  they transfer that money in Digital Wallet . Later, you can use it to pay bills, shopping, movie tickets etc .

Problems  with PPI

  • Doesn’t offer any interest. Hence, not good for financial inclusion .
  • PPI is nested payment model ie they deposit your money in account of some bank .  This increases contagion risk  .
  • There are issues related to security and KYC norms.

What are Payment Banks ?

  • PPI aren’t good due to above mentioned reasons. But their idea as a whole is good  .
  • Payment Banks are new stripped-down type of banks (Differential Banks), which are expected to reach customers mainly through mobiles rather than traditional bank branches .
  • These are under the recommendations of Nachiket Mor Committee  that RBI should give license to new type of banks i.e. Payment Banks under Banking Regulation Act .
  • Sept 2015 : RBI  granted ‘in principle’ approval for payment banks to 11 entities.  Later, 3  backed out of the business . Hence , 8 in market now
    1. Aditya Birla Nuvo Ltd.
    2. Airtel M Commerce Services Ltd.
    3. Department of Posts
    4. Fino PayTech Ltd.
    5. National Securities Depository Ltd
    6. Reliance Industries Ltd. (Jio)
    7. Vijay Shekhar Sharma  (Pay TM)
    8. Vodafone m-pesa Ltd.
    9. Cholamandalam Distribution Services Ltd (withdrew later)
    10. Dilip Shantilal Shanghvi (withdrew later)
    11. Tech Mahindra Ltd. (withdrew later)

Characteristics of Payment Banks

Target Audience Small businessman , poor (domestic) immigrant workers and rural population .
Potential candidate to run Mobile  companies, consumer goods companies, post office system, agri/dairy type cooperatives and Corporate Business correspondents.   
CRR Have to keep CRR just as Scheduled Commercial Banks .
Entry Capital Require ₹ 100 crore as entry capital .
Features Payment Banks can hold upto ₹ 1 Lakh  in an account and pay interest on these balances just like a savings bank account.
But they cant involve in any credit risk i.e. can’t give loan to others . However, they can invest in SLR approved securities & earn about 8% interest .
– They can issue debit cards (but not Credit Cards) and ATM cards usable on ATM networks of all banks.
They can enable transactions , transfers and remittances through a mobile .
– Since , Payment Banks can become Banking Correspondents of Universal Banks, hence customer can use same account as that of Universal Bank and take services of Payment Bank from that account.
Payment bank will enjoy all the rights and responsibilities of a Scheduled commercial banks .
Payments Banks are required to use the word ‘Payments’ in its name to differentiate it from other banks.  

Working of Payment Banks

Payment Banks

Case Study of m-Pesa : Why India should get Payment Banks (case study)

  • M-Pesa is Kenya’s Payment bank .
  • M = mobile & Pesa = Money in Swahili .
  • It provides banking services through mobile and works in same way as Payment Banks. Nachiket Mor Committee recommended to start Payment Banks based on the success story of m-Pesa innKenya.

Benefits of Payment Banks

  • Help in financial inclusion : It is uneconomical for traditional banks to open branches in every village but mobile  coverage is a promising low-cost platform  .
  • Remittances at Zero Cost : Their main target is migrant labourers . It will tap India’s domestic remittance market  .
  • Increase in disposable income of poor migrant families : Since Remittances will happen at zero cost , it will  increase disposable income in the hands of low income migrant families  .
  • They  will help in easy implementation of Direct Benefit Transfer.
  • They will help in moving India towards less cash society . 
  • They will create job opportunities in form of Payment Bank’s Agents.

Problems with Payment Banks

  • Low revenue: can’t undertake any lending businesses + can invest in SLR approved securities only  .
  • Banks are already offering most services that payments banks can offer  . Hence, for payments banks to offer a new and differentiated proposition will not be easy.
  • RBI has launched Unified Payment Interface (UPI) giving blow to business plans of Payment banks .

As a result, after initial enthusiasm in applying for payment banks, companies like Tech Mahindra, Sanghvi’s, Cholamandalam Investment have opted out.

Started till now

Jan 2017  (1) Airtel (first to start)
May 2017 (2) PayTM
2018 (3) Reliance Jio , (4) Fino, NSDL and (5) Birla launched their Payment Banks
September 2018 (6) India Post Payment Bank

Side Topic : Indian Post

September 2018 : India Post Payment Bank was launched

  • All 1.55 Lakh Post Offices  linked to Payment Bank System .
  • 3 lakh Post men and Grameen Dak Sewaks will provide on the door banking facilities  .
  • Upto 1 lakh deposit | 4% interest Rate | Debit Card facility | Free withdrawls from own ATMs and Punjab National Bank’s ATMs | No minimum balance .
  • India Post Payment Bank has all the features & benefits of Payment Banks (with additional benefit that they already have post office infrastructure) .
  • They have also partnered with Bajaj Alliance Life Insurance (BALIC) to sell insurance policies.

Post office as Financial Intermediary

  • Indian Post is the oldest & largest organisation involved in resource mobilisation in India .
  • It has huge network of 1.55 lakh post offices , 3 Lakh postmen & 5 Lakh employees .
  • 90% of Post-Offices present in Rural areas . 
  • Earlier too, it was providing  wide array of ‘financial services’  such as saving and other time deposit accounts, Public provident fund, Monthly Investment schemes, National saving certificates. 
  • It comes to rescue government when banking system is not able to deliver cash benefits such as under MGNREGA, Old age/disability Pension Schemes etc.
  • Post offices around the world have gone through this transformation in many countries & experience was quite successful there. Most notable is Royal Post in UK  which apart from Banking services , is also providing mobile and broadband services . US is also considering such plans.
  • It can free bigger commercial banks to concentrate on competitive commercial operations leaving social security works to be handled by Postal Bank.
India Post

4. Small Finance Banks

  • The purpose of the small banks will be to provide a whole suite of basic banking products such as deposits and supply of credit, but in a limited area of operation (contiguous districts in a homogenous cluster of states or union territories) .
  • These are modelled on Community Banks of USA .
  • In Community Bank, Employees of banks know almost every family and therefore is well aware of their assets, credit history, financial position and business. As a result,  MSME Industry, Retail Business men and Farmers can take loans from them without any problem.

Indian Parallels of Community Banks

  • Old Private Banks like Catholic Syrian Bank of Kerala, Nainital Bank etc.
  • Local Area Banks
  • Regional Rural Banks
  • Microfinance Institutions

Their employees know their customers very well unlike big PSBs (like SBI) and New Private Banks (like Axis, ICICI Bank).

Hence, Nachiket Mor recommended creation of Small Financial Banks based on Community Banks of USA  . They should focus on unserved, underserved , small and marginal farmers along with MSMEs . Even Indian parallels can get SFB license . Atlast, 10 contenders got license . eg : Capital Area Bank (Punjab) , Au Financiers (Jaipur) etc

Small Finance Banks

Prelims related information regarding Small Finance Banks 

  • They are licensed  under Banking Regulation Act .
  • PSL requirement = 75% (40% category wise (as Universal Banks) + 35% into PSL with competitive edge)   .
  • They are Scheduled Banks under RBI Act.
  • CRR and SLR requirements are similar to existing Commercial Banks.
  • CRAR/CAR requirements – 15% (ordinary Banks – 9%) .
  • FDI – upto 74% allowed.
  • They can open bank branches with condition that 25% branches should be in rural unbanked areas.
  • The maximum loan size and investment limit exposure to single/group borrowers/issuers would be restricted to 15% of capital funds.
  • Loans and advances of up to ₹25 lakhs, primarily to micro enterprises, should constitute at least 50 per cent of the loan portfolio.
  • They can evolve into Universal Banks after 5 years subject to RBI’s discretion .

5. Wholesale Bank

It has not formed yet . RBI proposed it in 2017.

  1. Wholesale Bank will be regulated under Banking regulation Act
  2. They can only accept deposits larger than Rs.10 crore from big investors. Apart from that, they will raise money by issuing bonds.
  3. It will not give loan to retail /common person . It will only lend in wholesale markets such as infrastructure sector or to corporates.
  4. PSL norms are applicable but at wholesale level. They will finance big projects in Priority Sector and can sell extra PSL certificates to Scheduled Banks to fulfil their targets.
Wholesale Bank

Why we need Wholesale Banks?

  • India need huge investments in Infrastructure Sector ( ₹40 trillion in next decade) . But there are issues
    • Till now , government is the biggest spender in infrastructure sector (45% of total infrastructure spending). But  government cant invest more  because of Fiscal Deficit problems .
    • Next biggest investor are banks . But they too cant invest more due to NPA Problem.

To get more investment in infrastructure , government is planning to come up with Wholesale Banks.

  • Tenor of the infrastructural loans is very long and therefore it does not incentivize institutions like Banks. Therefore there is a need of separate infrastructure banks. Wholesale Banks will perform that work.
  • Right now NBFC are not under supervision of RBI (and act somewhat like Shadow Banks) and are not covered under SARFAESI to recover their Bad Loans .  It is not in our interest to let them continue as this because they don’t have protection cover of CRR& SLR . By making Wholesale Banks, bigger NBFCs can be made to come under RBI’s regulatory supervision.
  • Apart from that , they will help Banks to achieve their PSL Targets . They will invest huge amounts in PSL Projects and then issue their PSL Certificates which can be bought by Banks 
Wholesale Bank