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Explain the concept of open market operations (OMO) in order to manage liquidity and financial conditions in the country. What is its impact on various macroeconomic parameters?

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

5. Explain the concept of open market operations (OMO) in order to manage liquidity and financial conditions in the country. What is its impact on various macroeconomic parameters? (250 words)

Difficulty level: Easy

Reference: Insights on India

Why the question:

The question is part of the static syllabus of General studies paper – 3.

Key Demand of the question:

To write about the impact of OMO on macroeconomic parameters.

Directive word:

Explain – Clarify the topic by giving a detailed account as to how and why it occurred, or what is the context. You must be defining key terms wherever appropriate and substantiate with relevant associated facts.

Structure of the answer:

Introduction: 

Begin by defining OMO.

Body:

First, explain the process of OMO – sale and purchase of securities and the methods it is done.

Next, write about impact of OMO on various macroeconomic parameters such as – inflation, growth, credit supply interest rates and exchange supply etc.

Conclusion:

Conclude by summarising.