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1) Explain the role of RBI in the economy and critically analyze whether it makes sense to restrict the primary role of RBI to inflation management?(250 words) 

Topic:  Statutory, regulatory and constitutional bodies

1) Explain the role of RBI in the economy and critically analyze whether it makes sense to restrict the primary role of RBI to inflation management?(250 words) 

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Why this question

The article critically analyzes the role of RBI in the past in comparison to post MPC. Thereafter, it examines whether it doesn’t make sense for RBI to limit its role to inflation management. In light of the recent debate surrounding RBI’s role , this question becomes important.

Key demand of the question

The first part of the question expects us to bring out the role of RBI in the economy. Thereafter, we need to explain how the monetary policy framework has made inflation targeting the primary role of RBI. We need to critically analyze whether this is the right approach and give a fair and balanced conclusion .

Directive word

Critically analyze – When asked to analyze, you  have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary. You need to conclude with  a fair judgement, after analyzing the nature of each component part and interrelationship between them.

Structure of the answer

Introduction – Highlight the current controversy with respect to RBI.

Body

  • Discuss the various functions that RBI performs such as money management, inflation targeting etc
  • Thereafter explain how inflation targeting has become the primary function of RBI post MPC.
  • Give reasons why this is the right approach. You can refer to Urjit Patel committee’s report on the same based on which the MPC had been formed. From there you will be able to figure out why it makes sense for RBI to focus on inflation
  • Bring out the experience of RBI in the past as a juggler of various functions and how focussing on inflation brings out the inflation growth conundrum.

Conclusion– Give a fair and balanced opinion and discuss way forward.