Monetary & Credit Management in India

Price stability and availability of sufficient credit for productive purposes have all along remained the twin objectives of monetary policy in India. Since 1991, the monetary policy reforms have hinged on easing fiscal constraints. The first important step was introduction of an auction system for the central government's market borrowings in June 1992. This enabled an increasing proportion of the fiscal deficit to be financed by borrowings at market-related rates of interest. This, in turn, enabled the Reserve Bank of India (RBI) to scale down the Statutory Liquidity Ratio to the targeted statutory minimum. The second significant step was the historic accord between the government and the RBI in September 1994, eliminating the automatic monetization of the fiscal deficit by gradually phasing out ad hocs. A system of ways and means advances to the central government, subject to mutually agreed limits at market-related rates, was put in place to meet mismatches in cash flows. The RBI h