~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.
