Reserve Bank of India & Monetary Management

Sol –

  • The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) is tasked with controlling inflation while also taking economic growth into account. 
  • The primary objective of the MPC is to maintain consumer price index (CPI) inflation at 4% with a tolerance range of ±2% (i.e., between 2% and 6%). 
  • This target is set by the Government of India and is reviewed periodically. 
  • The MPC decides the Repo rate, which controls the money supply in the economy
  • The money supply affects the general prices in the economy.

Mechanism : 

  • Decrease in Repo rate→ money supply increase→inflation rate increase 
  • Increase in Repo rate→money supply decrease→inflation rate decrease 

Other instruments 

Quantitative tools:

Qualitative Tools:

  • Reverse Repo rate, 
  • Reserve requirement – CRR, SLR, 
  • Market Operations- Open Market Operations,
  • Market Stabilization Scheme Operation twist G-SAP 
  • Moral Suasion 
  • Margin requirement 
  • Consumer credit Regulation 
  • Rationing of Credits 
  • Priority Sector Lending

Sol – 

The money multiplier refers to the ratio that measures how much broad money (M3) is created in the economy for every unit of reserve money (M0).

  • M3 = Currency in circulation (CU) + Demand and time deposit with banks 
  • M0 (High-powered money) =  Currency in circulation + Bank‘s deposit with RBI + Other deposits with RBI 

Post-COVID trend of MM in India – In India, recent efforts to promote financial inclusion have encouraged people to hold less cash in hand relative to their deposits, which partly explains the increase in the MM

Sol – 

Causes of food inflation in India – 

  1. Supply chain disruption 
  2. Extreme weather conditions – Heatwaves and heavy rain (Unseasonal and uneven rainfall)
  3. Poor infrastructure and logistics 
  4. Illegal hoardings
  5. Post-harvest losses [Food wastage]
  6. Regional and seasonal disparity – Many vegetables like Tomatoes and onions, are concentrated in a few states and are mainly grown in the Rabi season. 
  7. Rising international vegetable oil prices
  8. Note – Vegetables (Especially tomato, Onion, and Potato) and pulses (Especially Tur) contribute the  maximum to food inflation

Measures taken – 

  1. Robust data collection on price fluctuations  
  2. Buffer stocks
    • Open market sale scheme for wheat and rice from the central pool
    • Bharat aata, Bharat chana, moong 
    • A buffer stock of onions under price stabilization fund 
  3. Price stabilization scheme
  4. Reducing post-harvest losses
    • Operation TOP
    • Food processing 
  1. Climate-resilient crops (Research and Development)
    • High-yield and disease-resistant seed varieties
  2. Ban on hoarding and applying stock limits
    • Stock limit on wheat and Tur dal
    • Stock disclosure portal
  3. Subsidized sell
    • Of onion and tomato in Sept-Oct 2024
  4. Export control 
  5. Import from African countries (Pulses)
    • Ex – The country imported 7.7 lakh tonnes of tur in FY24, mainly from Mozambique, Tanzania, Malawi, and Myanmar
    • Ex – Duty-free import of chana, tur, urad, and masoor
  6. Better logistics [All-weather roads, warehouses, refrigerated trucks, Kisan rail, Krishi UDAN scheme, etc)
  7. Measures in the budget 2024-25 like – Farmer produce organizations, Cooperatives, and startups for the vegetable supply chain 

Sol – 

Technological advancement – 

  • UPI is a single mobile application for accessing different bank accounts.
  • It can be accessed on all major platforms, such as Android and iOS.
  • Multiple methods for integrating payments—QR-based payments, UPI ID-based payments, and payments using phone number
    • Virtual Payment Addresses instead of bank accounts 
  • UPI can be used even on a keypad phone 
  • Two-factor authentication (2FA), encrypted transactions, and biometric verification ensure secure transactions
  • The introduction of UPI 2.0 brought features like linking overdraft accounts, pre-authorized transactions, and invoices in the inbox for seamless bill payments.

Spatial advancement – 

  • The number of banks that became part of the real-time payment system increased from 35 in December 2017 to more than 380 in December 2022.
  • In FY19, UPI accounted for 17% of the country’s digital transactions. In FY22, UPI accounted for 52 % of the total digital transactions [More than 3 times] 
  • Monthly transactions crossed the value of 18 Lakh crore in January 2024 
  • Countries accepting UPI Payment – Sri Lanka; Mauritius; France; UAE; Singapore; Bhutan; Nepal
    • France becomes the first European country to accept UPI
  • Global players like Google, WhatsApp, Walmart, Amazon, Uber, etc., accept UPI payments 
  • Integration of UPI with Aadhaar for DBT (Direct Benefit Transfer)

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