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Monetary and Credit Management in India
By Anup Chatterjee

First Published : 2010
ISBN : 9788177082340
Pages : 274
Binding : Hardbound
Size : 5 x 9
Price : US$ 42

Price stability and availability of sufficient credit for productive purposes have all along remained the twin objectives of monetary policy in India. The monetary policy reforms since 1991 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 (SLR) to the targeted statutory minimum level of 25.0 percent by October 1997.

    The second significant step was the historic accord between the Government and the RBI in September 1994, eliminating the automatic monetisation of the Centre’s fiscal deficit by gradually phasing out ad hocs by April 1997. A system of ways and means advances (WMA) to the Central Government, subject to mutually agreed limits at market-related rates, was put in place instead to meet mismatches in cash flows.   

Credit policy is a powerful instrument for securing the desired economic results. Credit control can exercise a healthy restraining influence on speculation and can assist in bringing about a better balance between aggregate demand and aggregate supply.

RBI has largely been successful in bringing the organised sector of the money market well under its control. RBI is also playing a more active role in the provision of rural finance and is devoting special attention to the problem of promoting banking development in parts of the country in which it has hitherto been lacking. These developments have strengthened the credit system materially.

This book deals with various dimensions of monetary and credit management in India, focusing on post-liberalisation (1991 onward) period.

1. Money and Monetary Management by Central Banks
1.1 Meaning of Money
1.2 Fiat Money versus Fiduciary Money
1.3 Electronic Money (E-Money)
1.3.1 Definition and Kinds of E-Money
1.3.2 Benefits of E-money
1.3.3 Implications of E-money for the Central Bank
1.3.4 E-Money in India
1.4 Functions of Money
1.5 Monetary Management by Central Banks
1.5.1 History of Central Banks
1.5.2 Changing Objectives of Central Banks
1.5.3 Central Banks in Developed and Developing Countries
1.5.4 Functions of a Central Bank
1.6 Monetary Policy Objectives
1.7 Monetary Policy versus Fiscal Policy
1.8 Globalisation and Monetary Policy
2. Monetary Management by Reserve Bank of India
2.1 Establishment and Early History of RBI
2.2 Pre-Independence Activities of RBI
2.3 Functions of RBI
2.3.1 Sole Currency Authority
2.3.2 Banker to the Governments
2.3.3 Bankers' Bank and Lender-of-the-last-resort
2.3.4 Controller of Money and Credit
2.3.5 Controller of Foreign Exchange
2.3.6 Source of Economic Information
2.3.7 Promotional Role of RBI
2.4 Post-Independence Review of the Role and Responsibilities of RBI
2.4.1 Partition, Disruption and Devaluation
2.4.2 Nationalisation of RBI in 1949
2.4.3 Five Year Plans and the RBI
2.4.4 RBI as Institution Builder
2.4.5 Nationalisation of Banks in 1969 and 1980
2.4.6 Sukhamoy Chakravarty Committee and Monetary Policy Initiatives during the 1980s
2.5 Post-1991 Reforms and Responsibilities of RBI
2.5.1 Financial Sector Reforms
2.5.2 External Sector Reforms
2.5.3 Deregulation of Interest Rates
2.5.4 Short-term Liquidity Management
2.5.5 Payment and Settlement Systems
2.5.6 Regulation and Supervision
2.6 Measures of Money Supply in India
2.7 Monetary Policy Objectives
2.8 Monetary Transmission Mechanism
2.9 Independence and Accountability of the RBI
2.10 Monetary Policy-Fiscal Policy Interface in India
2.11 Conclusion
3. Monetary Policy and Prices
3.1 Relationship between Money and Prices
3.2 Definition and Measurement of Price Rise
3.3 Need to Monitor and Moderate Price Rise
3.4 Causes of Price Rise
3.4.1 Excess of Demand
3.4.2 Lack of Supply
3.4.3 Other Factors
3.5 Effects of Price Rise
3.6 Determinants of Price Policy
3.7 Constituents of Price Policy
3.7.1 Fiscal Policy
3.7.2 Monetary Policy
3.7.3 Commercial Policy
3.8 Role of Buffer Stock Operations
3.9 History of Price Controls in India
3.10 Price Stability as an Objective of Monetary Policy in India
3.11 Price Policy of the Government
3.11.1 Demand Side
3.11.2 Supply Side
3.12 Fiscal Deficits, Monetary Expansion and Price Rise
3.13 Conclusion
4. Monetary Policy Reforms Since 1991
4.1 Economic Reforms and Monetary Management
4.2 Constituents of Monetary Reforms
4.2.1 Ways and Means Advances (WMA) Replace Treasury Bills
4.2.2 Reactivation of the Bank Rate
4.2.3 Deregulation of Interest Rate
4.2.4 Deregulation of Credit
4.3 Introduction of Liquidity Adjustment Facility (LAF)
4.3.1 RBI’s Internal Group on Liquidity Adjustment Facility (LAF)
4.4 Changing Monetary Policy Paradigm in India
4.5 Recent Challenges
4.6 Operating Procedures of Monetary Policy
4.6.1 Liquidity Adjustment Facility (LAF)
4.6.2 Market Stabilization Scheme
4.7 External Sector Openness and Conduct of Monetary Policy
4.8 Monetary Policy Assessment
5. Credit Institutions in India
5.1 Significance of Credit
5.2 Institutional Structure of Credit Market in India
5.3 Commercial Banks
5.4 Regional Rural Banks (RRBs)
5.5 Development Finance Institutions (DFIs)
5.5.1 All-India Financial Institutions (AIFIs)
5.6 Non-banking Financial Companies (NBFCs)
5.7 Co-operative Banks
5.7.1 Urban Co-operative Banks (UCBs)
5.7.2 Rural Co-operatives
6. Credit Policy Developments in India
6.1 Allocation of Credit
6.1.1 Allocation of Credit between Government and the Private Sector
6.1.2 Inter-sectoral Allocation of Institutional Credit
6.1.3 Inter-regional Allocation of Credit
6.2 Credit Market Reforms
6.2.1 Measures to Reduce Non-performing Assets (NPAs)
6.2.2 Development of Securitisation Market
6.2.3 Roadmap for Foreign Banks
6.2.4 Complex Financial Products
6.2.5 Credit Derivatives
6.2.6 Credit Information Services
6.3 Flow of Credit to Agriculture and Allied Activities
6.3.1 Credit and Agricultural Development
6.3.2 Credit Needs of the Indian Farmers
6.3.3 Advisory Committee on the Flow of Credit to Agriculture and Related Activities from the Banking System (Chairman: V.S. Vyas), 2004
6.3.4 Expert Group on Investment Credit in Agriculture (Chairman: Y.S.P. Thorat), 2005
6.3.5 Group to Examine Issues Relating to Rural Credit and Micro-finance, 2005
6.3.6 Working Group on Warehouse Receipts and Commodity Futures, 2005
6.3.7 NABARD and the Co-operative Sector
6.3.8 Micro Finance (Self-help Group-Bank Linkage Programme)
6.3.9 Kisan Credit Cards (KCCs)
6.3.10 Moneylenders
6.3.11 Agricultural Credit: Recent Policy Announcements
6.3.12 Agriculture Credit in the 2006-07 Union Budget
6.3.13 Agricultural Debt Waiver and Debt Relief Scheme, 2008
6.4 Credit Flow to Micro, Small, and Medium Enterprises (MSMEs)
6.4.1 Working Group on Flow of Credit to the Small and Medium Enterprises (SMEs), 2004
6.4.2 Group to Review Guidelines on Credit Flow to SME Sector, 2005
6.4.3 Policy Package for Credit to Small and Medium Enterprises
6.4.4 Working Group on Credit Delivery to the Micro and Small Enterprises Sector, 2008
6.5 Credit to Export Sector
6.5.1 Working Group to Review Export Credit, 2005
6.6 Expert Group on Credit-Deposit Ratio, 2005
7. Public Debt Management in India
7.1 Rationale for Government Borrowings
7.2 Constitutional Provisions Pertaining to Public Borrowings in India
7.3 Instruments of Government Borrowings in India
7.4 Reserve Bank of India as Debt Manager of the Government
7.4.1 RBI’s Evolving Strategy of Debt Management
7.5 Recent Trends in Central Government Liabilities
7.5.1 Contingent and other Liabilities
7.6 Separation of Debt Management from Monetary Management
7.7 Indebtedness of States
7.7.1 States’ Debt Restructuring Suggested by the Twelfth Finance Commission
7.8 Management of Market Borrowings by State Governments
7.9 Thirteenth Finance Commission on Public Debt

Bibliography; Index


Dr. Anup Chatterjee is presently Associate Professor in the Department of Economics, A.R.S.D. College, University of Delhi, New Delhi. He did his M.A. (Economics) from Delhi School of Economics and Ph.D. from Faculty of Applied Social Sciences, University of Delhi. Dr. Chatterjee has 15 years of research experience and 35 years of teaching experience to post-graduate and undergraduate classes. He has been on the visiting faculty of Post-graduate Department of Business Economics, South Campus, University of Delhi, Indian Institute of Technology (IIT), New Delhi, Fore School of Management, New Delhi, and National Institute of Financial Management (Ministry of Finance, Government of India), Faridabad. He is also a resource person of Indira Gandhi National Open University (IGNOU), New Delhi, for preparing reading material for both post-graduate and undergraduate students of economics. Dr. Chatterjee has published articles in Indian Journal of Canadian Studies.

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