Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
3) With successive cuts in the policy rates, the RBI has been sending a signal to the rest of the banking system that the lending rates should come down. However, the monetary policy transmission has been inefficient in India. Discuss. Suggest measures to tackle the issue.
Why this question:
The Monetary Policy Committee of the Reserve Bank of India (RBI) decided to keep the interest rate unchanged at 5.15% in the fifth bimonthly policy review, citing inflation concerns despite economic growth continuing to slow down. All the six members of the MPC voted in favour of keeping the interest rate unchanged.
Key demand of the question:
One must assess the reasons for poor transmission of the monetary policies, the implications of not doing so by the banks and the other measures needed
Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.
Structure of the answer:
Briefly narrate the background of the issue. between February and August, the RBI cut repo rate from 6.5% to 5.4%. But, the interest rate charged by banks on fresh loans fell just 27% of the amount by which the repo rate came down.
The answer should cover the following:
Discuss first the role of RBI’s Monetary Policy.
Monetary Policy Process and Goals of Monetary policy.
Current issues facing RBI policies.
What needs to be done to address these issues and challenges?
Discuss the role of government policies is also of prime importance in handling such issues.
Conclude with a way forward.