B.Com Ist Year Monetary Policy Long Short Question Answer Notes
(5) Lack of Co-ordination : Our government has failed to co-ordinate properly monetary and fiscal policies. In such a situation, monetary policy fails to achieve its objectives.
(6) Existence of Non-monetary Sector : In India, a major portion of transactions is made without using money. In such a case monetary policy can not work effectively.
Q. 22. Examine the main features of new monetary policy of Reserve Bank of India.
Ans. Sh. D. Subbarao, Governor RBI has announced Monetary Policy for the year 2011-12 on 3rd May, 2011. This policy is announced when inflation rate is high. It is recognised that high inflation rate is harmful to sustainable growth. So efforts will be made to check inflation even at the cost of some growth. Following are the main highlights of this policy.
1. Bank rate is kept unchanged at 6%.
2. Cash Reserve Ratio (CRR) is unchanged at 6%.
3. Repo Rate and Reverse-Repo Rate are raised to 7.25% and 6.25% respectively.
4. The expansion of money supply is projected at around 1770 during 2011-12.
5. Inflation rate for the year 2011-12 is expected to be 6%.
6. GDP growth rate for the year 2011-12 is expected to be
7. Bank credit is projected to increase by around 20% 2011-12
8. Credit Guarantee Scheme has been started for disfarmers.
9. To meet credit requirements in the economy, ap!
liquidity will be maintained along with the a price stability.
10. To focus on credit requirements of export sector, liberal finace will be made available to exporters.
11. The growth in aggregate deposits is projected at 18% in the year 2011-12
12. Banks to display and update, in their offices/branches as also on their websites, the details of various service charges in a format which is approved by the Reserve Bank.
13. Limit on investment in foreign countries by Indian companies is increased from 300% to 400% of their net worth. .
14. Limit on investment in foreign countries by Indian individuals is increased from U.S. $ 1,00,000 to U.S. $ 2,00,000 per financial year.
15. Ceiling for overseas investment by mutual funds is enhanced fromUS$5 billion per annum to US $ 7 billion per annum.
16. Limit on external commercial borrowings has been raised from US $ 35 billion to US $ 40 billion.
17. Indian companies limit for portfolio investment abroad in listed overseas companies is enhanced from 35% to 50% of net worth.
18. The ceiling on interest rates payable by Non Banking Finance Companies (NBFCs) on deposits is increased from 11% to 12.5% per annum.
19. A simplified procedure for granting crop loan upto Rs.50,000 is started. In this scheme, bank will provide credit to landless labourers, crop-sharers, tenant farmers by accepting an affidavit giving details of lands tilled/crops grown encourage by such person. Banks will Self-Help-Group (SHG) mode of lending to such persons.
20. Export credit refinance limit for commercial banks has been increased from 15% to 50% of outstanding export credit.
21. Branch expansion policy is relaxed to allow more penetration and competition among banks in India.
22. Base Rate for public sector banks is fixed in the range of 8.25% to 9.50%. In the monetary policy 2010-11, banks have been directed to replace Prime lending Rate System with Base Rate System of loan pricing (determining lending is expected to facilitate better rates). The new system is expected to facilitate better pricing of loans (determining interest rate on loans) and enhance transparency in lending rates.
23. To further strengthen National Electronic Funds Transfer System, various measures have been confirmation of credit of funds to the beneficiary’s account along with time and date of actual credit of funds should be
sent through SMS or e-mail.
24. Setting up more ATMs by banks is made easier. Well managed urban cooperative banks have been allowed to set up ATMs.
25. By learning from the experience of global financial crisis,RBI has initiated efforts to improve efficiency of financial sector and financial markets to absorb any future global financial shocks.
26. To provide more credit to micro and small enterprises,
banks have been directed not to insist on collateral security on loans upto Rs. 10 lakh as against the present limit of Rs. 5 lakh. To ensure enhanced credit flow to micro and small enterprises, commercial banks should achieve 20% growth rate in credit to these sectors.
27. Keeping in mind the increased penetration of mobile phones in India, RBI has initiated efforts to promote mobile phone banking for linking more people with banking system. It will promote banking habits among masses.
In new monetary policy, it is recognised that keeping in view the recent global financial crisis, our banks and financial institutions should be more vigilant. Net capital inflows are expected to increase further keeping in view higher growth in domestic economy as compared to global economy and large interest rate differentials in Indian economy and advanced economies. It will pose a challenge to absorb excess liquidity and manage exchange rates in Indian economy.
Short Answer Questions
Q.1. Discuss the main objectives of Monetary Policy in India.
Ans. See Page 88 and 89.
Q.2. What is the main causes of failure of Monetary Policy in India.
Ans. See Page 91 and 92.
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