In India, which one of the following is responsible for maintaining price stability by controlling inflation?
Reserve Bank of India
Understanding India's Price Stability Mechanism
Maintaining price stability, which essentially means controlling inflation, is a critical function for any economy. In India, several government bodies and institutions play roles in the economy, but one specifically holds the primary responsibility for monetary policy aimed at achieving this stability.
Role of Different Bodies in India
Let's look at the roles of the options provided:
- Department of Consumer Affairs: This department focuses on consumer protection, weights and measures, and monitoring retail prices of essential commodities. While price monitoring is involved, its main role is not controlling overall inflation through monetary policy.
- Expenditure Management Commission: This commission advises the government on managing public expenditure, aiming for fiscal prudence. It deals with government spending, not monetary policy or direct inflation control.
- Financial Stability and Development Council (FSDC): This council coordinates financial sector regulators in India. Its focus is on maintaining financial stability, inter-regulatory coordination, and financial sector development. While financial stability is related to overall economic stability, its primary mandate is not controlling inflation directly through monetary instruments.
- Reserve Bank of India (RBI): The Reserve Bank of India is the central banking institution of India. Its primary role includes formulating, implementing, and monitoring the monetary policy of India. The key objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. The RBI uses various tools like repo rate, reverse repo rate, Cash Reserve Ratio (CRR), and Statutory Liquidity Ratio (SLR) to manage liquidity and credit in the economy, thereby influencing inflation.
Reserve Bank of India and Inflation Control
The Government of India and the Reserve Bank of India have an agreement on a monetary policy framework. Under this framework, the primary objective of the RBI's monetary policy is to maintain price stability. The target for headline inflation is set by the Government of India in consultation with the RBI. Currently, the target is 4% with a band of +/- 2%.
The Monetary Policy Committee (MPC) of the RBI is responsible for fixing the policy interest rate (repo rate) required to achieve the inflation target.
Therefore, the Reserve Bank of India is the institution explicitly mandated and equipped to maintain price stability by controlling inflation through monetary policy tools.
Conclusion on Price Stability Responsibility
Based on the roles and mandates of the institutions mentioned, the responsibility for maintaining price stability by controlling inflation in India lies with the Reserve Bank of India.
| Institution | Primary Role Relevant to Prices/Stability |
|---|---|
| Department of Consumer Affairs | Consumer protection, Price monitoring (retail level) |
| Expenditure Management Commission | Advising on government expenditure management |
| Financial Stability and Development Council | Financial stability, Regulatory coordination |
| Reserve Bank of India (RBI) | Monetary Policy, Price Stability (Inflation Control) |
Revision Table: Understanding RBI's Role in Price Stability
| Concept | Description |
|---|---|
| Mandate | To maintain price stability while considering growth. |
| Inflation Target | Set by Government in consultation with RBI (currently 4% +/- 2%). |
| Mechanism | Monetary Policy Committee (MPC) sets policy rates. |
| Tools | Repo rate, CRR, SLR, Open Market Operations, etc. |
Additional Information: Monetary Policy vs. Fiscal Policy
It's important to distinguish between monetary policy and fiscal policy:
- Monetary Policy: Managed by the central bank (RBI in India). Involves controlling the money supply and credit conditions, typically through interest rates and reserve requirements, to influence inflation and growth.
- Fiscal Policy: Managed by the government. Involves government spending and taxation decisions to influence the economy. While fiscal policy can also impact inflation (e.g., through subsidies or taxes), the primary tool for direct inflation targeting and price stability is monetary policy.
The Reserve Bank of India's role is primarily in implementing monetary policy to achieve the objective of price stability.
Similar Questions
With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?
- Acquiring new technology is capital
- Debt financing is considered capital expenditure, while equity financing is considered revenue
Select the correct answer using the code given below:
With reference to the Indian economy, consider the following statements :
- A share of the household financial savings goes towards government borrowings.
- Dated securities issued at market- related rates in auctions form a large component of internal debt.
Which of the above statements is/are correct ?
Consider the following statements:
- Tight monetary policy of US Federal Reserve could lead to capital
- Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
- Devaluation of domestic currency decreases the currency risk associated with
Which of the statements given above are correct?
Consider the following statements:
- In India, credit rating agencies are regulated by Reserve Bank of India.
- The rating agency popularly known as ICRA is a public limited company.
- Brickwork Ratings is an Indian credit rating agency.
Which of the statements given above are correct.
With reference to the 'Banks Board Bureau (BBB)', which of the following statements are correct?
1. The Governor of RBI is the Chairman of BBB.
2. BBB recommends for the selection of heads of Public Sector Banks.
3. BBB helps the Public Sector Banks in developing strategies and capital raising plans.
Select the correct answer using the code given below:
With reference to Convertible Bonds, consider the following statements:
- As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of
- The option to convert to equity affords the bondholder a degree of indexation to rising consumer
Which of the statements given above is/are correct?
In India, which one of the following compiles information on industrial disputes, closures, retrenchments and lay- offs in factories employing workers?
Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'?
Consider the following markets :
1. Government Bond Market
2. Call Money Market
3. Treasury Bill Market
4. Stock Market
How many of the above are included in capital markets?
Which one of the following best describes the concept of 'Small Farmer Large Field'?
Important Questions from Miscellaneous
With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?
- Acquiring new technology is capital
- Debt financing is considered capital expenditure, while equity financing is considered revenue
Select the correct answer using the code given below:
With reference to the Indian economy, consider the following statements :
- A share of the household financial savings goes towards government borrowings.
- Dated securities issued at market- related rates in auctions form a large component of internal debt.
Which of the above statements is/are correct ?
Consider the following statements:
- Tight monetary policy of US Federal Reserve could lead to capital
- Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
- Devaluation of domestic currency decreases the currency risk associated with
Which of the statements given above are correct?
Consider the following statements:
- In India, credit rating agencies are regulated by Reserve Bank of India.
- The rating agency popularly known as ICRA is a public limited company.
- Brickwork Ratings is an Indian credit rating agency.
Which of the statements given above are correct.
With reference to the 'Banks Board Bureau (BBB)', which of the following statements are correct?
1. The Governor of RBI is the Chairman of BBB.
2. BBB recommends for the selection of heads of Public Sector Banks.
3. BBB helps the Public Sector Banks in developing strategies and capital raising plans.
Select the correct answer using the code given below:
