NCERT Solutions for Class 7th Social Science Chapter 20 Chapter opening — The Big Questions

Book page 193 Updated on2026-09-19

Q1.

What is financial infrastructure, and what does it comprise?

Answer

Financial infrastructure is “a network of banks, payment systems, stock markets, and other financial institutions that help people, businesses, and the government facilitate financial transactions and manage money”. Those are the chapter’s own words on page 194.

Chapter 19 dealt with physical infrastructure — roads, railways, telecommunication. Those carry goods, people and messages. Financial infrastructure carries something you cannot load on a truck: money. And it is also the answer to the question the chapter asks at the start — “how is the development and maintenance of the vast physical infrastructure funded?”

It comprises four kinds of parts, each of which the chapter takes up in turn:

Part	What it does	The chapter’s examples
Banks	Hold deposits, pay interest on them, and lend that money out as loans	The bank that takes Navdeep’s ₹3000 and lends to Rima; savings, current and fixed deposit accounts (Fig. 8.4)
Other financial institutions	Serve savers and sectors that ordinary banks may not reach	Post offices (NSC, Kisan Vikas Patra, Sukanya Samriddhi); the Industrial Finance Corporation of India for power and textiles; NABARD for farming, village industries, roads and irrigation
Payment modes and systems	Move money from one person or account to another	Cash, cheques, debit cards, ATMs, POS machines, netbanking, BHIM and UPI
Stock market	Lets companies raise money by issuing shares, and lets people invest their savings in them	The Bombay Stock Exchange, established in 1875

Above all of these sits the Reserve Bank of India, the central bank, which supervises the banking system, prints and distributes currency and fixes the benchmark interest rate — because, as the chapter puts it, “with numerous banks and financial institutions, it is essential to have clear rules and regulations that everyone follows”.

Why it happens: a shopkeeper pays a worker, the worker buys rice, the rice-seller pays the farmer. Every one of those steps is a transaction, and each one needs somewhere safe to keep money, some way to move it, and someone willing to lend when a person has an idea but not the cash. Financial infrastructure is simply the standing arrangement that makes all three possible without the two people having to know or trust each other personally.

Q2.

What are the main functions performed by banks and how do they impact people’s lives?

Answer

A bank does two main things, and they are two halves of one action: it holds deposits and it offers loans or credit. The chapter gives each of these its own heading.

1. Hold deposits. “A bank accepts and holds money (deposits) that people put into the bank account. They not only keep it safe for us but also lend it to businesses or other people. In return, the banks give us some extra money over a regular period (say quarterly or monthly or annually) in the form of ‘interest’.” To use any of this you must first open an account and become a bank account holder. Fig. 8.4 gives three types:

Account	Who it is for	Interest	Withdrawals
Savings account	Individuals who save regularly	Yes	Allowed, but there are limits on how often each month; opens with a minimum deposit
Current account	Businesses and traders who often make and receive payments	No	Generally no limit on how many times money is deposited or withdrawn
Fixed deposit account	Anyone who can lock money away for 3 or 5 years	Yes — usually higher than a savings account	A one-time deposit; the amount plus interest comes back at the end of the period

2. Offer loans or credit. “Banks lend money to borrowers as loans for specific purposes such as buying a house or vehicle, funding education, etc. Businesses borrow money for purchasing new machinery and raw materials, transporting products, launching new products in markets.” The borrower repays the loan amount along with interest.

How the two halves join. The money the bank lends is the money it has taken in. Navdeep’s ₹3000 does not lie in a locker — it becomes the loan that lets Rima buy bamboo and run her business.

The bank stands between a saver and a borrower. It pays a lower rate on the deposit than it charges on the loan — that gap is its income (Fig. 8.8 in the book).

How this changes people’s lives. The chapter answers this through the Jan Dhan Yojana account on page 200:

Safety. Money at home can be lost, stolen or spent; money in a bank is safe and can be tracked in a passbook.
Growth. Savings earn interest, and with compounding they grow year after year.
Opportunity. Farmers borrow to start a small business or expand their farming; a bamboo-worker like Rima can take an order she could not otherwise afford.
Direct benefits. Workers receive wages straight into their accounts, and students receive scholarships into theirs. “Such direct transfers have reduced middlemen and ensure the timely disbursement of funds.”
Reach. Before 2014 only 15 crore Indians had bank accounts; since the Pradhan Mantri Jan Dhan Yojana, over 50 crore accounts have been opened — mainly by women — with no minimum balance or fees.

Q3.

How does financial infrastructure contribute to a nation’s progress?

Answer

It turns idle money into working money. Before we move on … puts it in one line: financial infrastructure “promotes savings, credit and investment that boosts economic activity, and ultimately contributes to the nation’s prosperity”.

The chapter shows this happening in four ways.

What it does	How the chapter shows it
Moves savings to the people who can use them	Navdeep’s surplus salary would do nothing in his cupboard. Through the bank it becomes Rima’s working capital, and her bamboo business grows. Multiply that by crores of accounts and it becomes the country’s investment.
Makes transactions quick, cheap and recorded	Before UPI, transfers meant filling a cheque and visiting a bank — “time-consuming and discouraged a majority of people from using banking services, leading to heavy reliance on cash due to which billions of rupees were used every day without a record”. UPI, launched by NPCI in 2016, made the same transfer instant and traceable.
Lets companies raise funds	“Issuing shares help companies raise funds for their operations.” A company that needs a new factory need not find one very rich lender; it can sell small pieces of ownership to many people through the stock exchange.
Includes people who were left out	Post offices reach “even in remote locations”; NABARD funds banks that lend for farming, village industries and rural infrastructure; the Jan Dhan Yojana put over 50 crore people inside the banking system.

Why it happens: the money a nation saves and the money it needs to invest are almost never in the same hands. The person with a spare ₹3000 rarely has a business plan, and the person with a business plan rarely has spare cash. Financial infrastructure is the bridge between them. Wherever that bridge is missing, savings sit dead in cupboards and good ideas never start — which is exactly why the chapter calls it infrastructure, just like a road.

Did you know? The chapter opens with Joseph Schumpeter’s line that the banker “is the producer of a vital service, enabling entrepreneurs to transform ideas into reality through credit”. Credit does not create the idea — it lets the idea start before the money for it has been earned.

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