The Monetary Policy of India

 the Monetary Policy of India
Monetary policy is the policy of the Central Bank for maintaining its control over the money supply for the realisation of general economic goals. But in a developing economy, monetary policy cannot remain confined only to controlling the supply of money. In the context of such economies, monetary policy must play a positive role.
The first Plan aptly remarked: Central banking in a planned economy can hardly be confined to the regulation of the overall supply of credit.
It would have to create the machinery needed for financing the developmental activities all over the country and in ensuring that the finance available flows in the directions needed.
Accordingly the functions of the Reserve Bank have been expanded from merely discharging the traditional central banking functions to performing an active, developmental and promotional role in meeting the demands of the expanding Indian economy.
In the Indian context, the objective of monetary policy has been to accelerate economic development in an environment of reasonable price stability.
The monetary authority has to ensure that no legitimate productive activity is hampered by shortage of finance but, at the same time, the funds shall not become excessive to cause inflation. In other words, Reserve Bank’s responsibility is not merely one of credit restriction.
In a growing economy there has to be a continuous expansion of money supply and bank credit and the central bank has the duty to see that legitimate credit requirements are met.
The Bank’s responsibility in the circumstances is mainly to moderate the expansion of credit and money supply in such a way up to ensure the legitimate requirements of industry and trade and curb the use of credit for unproductive and speculative purposes.
That is why the monetary policy adopted by the Reserve Bank is known as that of controlled monetary expansion. Controlled monetary expansion implies two aspects: (i) Expansion of money supply...