Vii Adapter

Evaluate RBI's Monetary Policy

Evaluation of RBI'S Monetary Policy.

*INTRODUCTION:

~The RBI is the central bank of India and it enjoys the apex position in the country's monetary and banking structure.

~It influences the country's financial markets through its Monetary policy.

~Over the years RBI's Monetary policy has undergone significant changes with a view to secure a stable financial position for India in the global market.

*EVALUATION:

~Like any other policies, RBI's monetary policy too has its own set of pros and cons.

~Various goals have been achieved but there are certain drawbacks that need to be overcome .

~The following is the detailed evaluation of the achievements and failures of RBI's Monetary Polices:

#ACHIEVEMENTS:

i)FINANCIAL STABILITY:

^Inspite of the global financial crisis the RBI has been successful in maintaining financial stability in the economy

^RBI's control, supervision and regulation measures have proved to be a boon to the economy.

ii)SHORT TERM LIQUIDITY MANAGEMENT:

^Through its various measures like Liquidity Adjustment Facility, Open Market Operations and Market Stabilization Schemes, the RBI has managed to maintain short term liquidity in the market.

^This has resulted in stability in exchange rates and interest rates.

iii)ADAPTABILITY:

^RBI has adapted its monetary policy to meet the demands of the modern dynamic economy.

^It has adopted new method of credit control that has made the monetary system in India flexible.

iv)FINANCIAL INCLUSION:

^ RBI along with the NABARD has played a significant role in micro financing.

^It has promoted Self Help Groups and other micro financing institution.

v)ECONOMIC GROWTH:

^ Even during the current phase of global crisis the growth of the Indian economy has remained intact.

^This is due to the various measures taken by the RBI.

^To a certain extent the RBI's monetary policy has been responsible for the progressive growth of the Indian Economy.

^In 2009-2010, India has recorded 2nd highest rate of GDP growth in the world.(China has the highest GDP growth rate)

vi)HEALTHY COMPETITION:

^ The RBI's monetary policy has resulted in healthy competition in India's banking structure.

^Due to this, the overall efficiency of the bank has improved.

vii)FINANCIAL DISCIPLINE:

^ The monetary policy has also brought in professionalism and financial discipline in India ‘s banking sector.

^ The directives issued by the RBI have to be strictly followed by commercial banks.

viii)PRIORITY SECTORS:

^The RBI emphasized on priority sector lending through its monetary policy

^ As result, the performance of the priority sectors (micro and small enterprise) and also that of the export sector has improved significantly.

#FAILURES:

i)EXISTENCE OF UNORGANISED MONEY MARKETS:

^The monetary policy of the RBI does not affect the functioning of the large unorganized money market in India

^This comprises money lenders, indigenous bankers, chit fund,etc who continue to provide credit to a large number of people at high rate of interest.

^ This has an adverse effect on the implementation of monetary policy.

ii)WEAK CHANNELS OF MONETARY TRANSMISSIONS:

^ The channels of monetary transmissions like credit availability, interest rate, exchange rate and asset

Price are relatively weaker.

^ This indicates that the monetary policy does not get effectively transmitted to the economy through these channels.

^ The presence of unorganised money market speculative asset market and underdeveloped security market is the cause of this failure.

iii)PROBLEM OF INFLATION:

^At present India is facing a very high rate of food inflation.

^ In May 2010, it was well over 10%.

^However, inflation is largely due to the supply side factors.

^So RBI's monetary dose not prove to be very effective to control inflation.

iv)EXISTENCE OF BLACK MARKET:

^India had a high incidence of tax evasion. This has led to a high amount of black money.

^Black money gives rise to inflation and speculative activities.

^The impact of such money cannot be avoided / controlled by RBI's monetary policy.

v)PREFERENCE FOR CASH TRANSCACTION:

^In India a major part of the population still prefers cash transactions over chque/card.

^Such transactions are out of reach of RBI's monetary policy.

vi)PHASING OUT OF SELECTIVE METHODS:

^Selective Methods are gradually being phased out.

^ However revival of these methods of credit control can tackle specific inflation more effectively.

^Methods like credit rationing and discriminatory interest rates can be put to effective use.

vii)PROBLEM OF BANKING INFRATRUCTURE IN RURAL AREAS:

^Rural areas lack strong banking infrastructure.

^Hence economic growth in rural areas is comparatively poor.

^RBI's monetary policy can be effectively implemented only in the presence oh strong banking infrastructure.

viii) CORRUPTION:

^Corruption and inefficiency in banking sectors give rise to financial scams.

^Thus, inspite of a good monetary policy, the economy of a nation gets adversely affected.

 

 

About the Author

Notesnmore.com provides you free handwritten notes on fyjc, syjc, fybcom, sybcom, tybcom, mcom1, mcom2 for Mumbai university students for commerce field

 

Product Reviews VII : Canon CA920 Power Adapter Product Review