Each question is of 15 marks.

A1. Pami Dua’s -Monetary policy framework in India. mainly Section 3 “Genesis of monetary
policy in India since 1985” with sub sections.
 Genesis of monetary policy in India since 1985

Monetary targeting with feedback: 1985–1998

In the 1970s through the mid-1980s, monetization of the fiscal deficit exerted a dominant influence on
monetary policy with inflationary consequences of high pub- lic expenditure necessitating frequent
recourse to CRR. (RBI 1985; Chairman: Dr. Sukhamoy Chakravarty), a new mon- etary policy
framework, “Monetary Targeting with Feedback” was implemented based on empirical evidence of a
stable demand for money function. The recommendation of the committee was to control inflation within
acceptable levels with desired output growth.

Multiple Indicator Approach: 1998–2016

The operational framework of AMIA(Augmented MIA) is illustrated in Fig. 3. Compared to the

Monetary Targeting Framework, the goals of monetary policy remained the same and broad money
continued to serve as the intermediate target while the underlying oper- ating mechanism of MIA evolved
over time. In May 2011, the weighted average call money rate (WACR) was explicitly recognized as
the operating target of monetary policy while the repo rate was made the only one independently varying
 policy rate. These measures improved the implementation and transmission of monetary policy along
with enhancing the accuracy of signaling of monetary policy stance (Mohanty 2011).

Shift towards inflation targeting

(Government of India 2009; Chairman: Dr. Raghuram Rajan) constituted by the Government of India

Further, the report recommended that there should be a single objective of staying close to a low infla-
tion number, or within a range, in the medium term, moving steadily to a single instrument, the short-
term interest rate to achieve it.
(RBI 2014; Chairman: Dr Urjit R Patel). The mandate of the Committee, amongst others, was to
review the objectives and conduct of monetary policy in a globalized and highly interconnected

environment..
Generally five types of nominal anchors have been used, namely, monetary aggregates, exchange
rate, inflation rate, national income and price level. The Expert Committee recommended inflation to
be the nominal anchor of the monetary policy framework in India as flexible inflation targeting
recognizes the existence of growth- inflation trade-off in the short-run and stabilizing and
anchoring inflation expecta- tions is critical for ensuring price stability on an enduring basis.
Further, low and stable inflation is a necessary precondition for sustainable high growth and
inflation is also easily understood by the public.
Regarding the inflation metric, the Committee recommended that RBI should adopt the all India CPI
(combined) inflation as the measure of the nominal anchor. This is to be defined in terms of headline
CPI inflation,
The Committee recommended the target level of inflation at 4% with a band of
± 2% around it.
1.1 Flexible inflation targeting: 2016 onwards

With the signing of the Monetary Policy Framework Agreement (MPFA) between the Government of
India and the RBI on Feb 20, 2015, Flexible Inflation Targeting (FIT) was formally adopted in India.
Accordingly, the Central Government has notified in the Official Gazette 4% Consumer Price Index
(CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the upper
tolerance limit of 6% and the lower toler- ance limit of 2%.
In 2016, India thus joined several developed and emerging market economies that have
implemented inflation targeting.

Monetary Policy Committee: composition, monetary policy framework and voting patterns
. The Central Government in September 2016 thus constituted the MPC with three members from
RBI including the Governor as Chairperson and three external members.
.
The MPC is entrusted with the task of fixing the benchmark policy rate (repo rate) required to
contain inflation within the specified tolerance band.

It is imperative here to note some of the key elements of the revised framework for liquidity
management (RBI 2019) that are particularly relevant for the operating framework shown in
Fig. 5. As noted in the RBI Monetary Policy Report, 2020.

• Liquidity management remains the operating procedure of monetary policy; the weighted average call rate
(WACR) continues to be its operating target.
• The liquidity management corridor is retained, with the marginal standing facil- ity (MSF) rate as its upper
bound (ceiling) and the fixed reverse repo rate as the lower bound (floor), with the policy repo rate in the
middle of the corridor.
• The width of the corridor is retained at 50 basis points—the reverse repo rate being 25 basis points below the
repo rate and the MSF rate 25 basis points abovethe repo rate. (The corridor width was asymmetrically widened
on March 27 andApril 17, 2020.)
• Instruments of liquidity management continue to include fixed and variable rate repo/reverse repo auctions,
outright open market operations, forex swaps and other instruments as may be deployed from time to time to
ensure that the systemhas adequate liquidity at all times.
• The current requirement of maintaining a minimum of 90% of the prescribed CRR on a daily basis will
continue. (This was reduced to 80% on March 27, 2020.)

The first meeting of the MPC was held in October 2016. Between October 2016 and March
2020, the MPC has met 22 times.
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A2. Maitreesh Ghatak reading on Land Reforms in full. Explanation of types of land
reform measures and their critical evaluation.
 3

A3. Anil K. Sharma’s - Is there less krishi in Bharat? mainly sections 2,3 and 4 of the
reading. Explain that ‘rural development is less linked to agricultural sector’ ..

A4 R. Nagraj’s and Uma Kapila’s editorial notes (Industrial Development section). Discussion
of the policy reforms in 1991, and how these reforms led to competition by
elimination/reduction of monopolies (state or private).

A5 Nagesh Kumar’s, R. Nagraj’s and Uma Kapila’s editorial notes- analysis of how domestic
credit markets need to boost up.

A6. Shoumitro Chatterjee, Arvind Subramanian reading, India’s Inward (Re) Turn- mainly
section 3 and 4—Dispelling the three myths and how it’ll be like killing the only goose that
lays eggs. Section 2, the trends that India has turned inward, not required. Answer contradict
the prescribed reading—the student has to answer that turning inward will lead to mediocre
growth.

.
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A7. Rupa Chanda’s -, India’s service sector- from sections 2-5 alone. Only trends required as
given in the relevant sections of the reading.

A8. Brief description of the readings required, as given part-wise:

a) Pulin Nayak’s reading on Privatisation

b) Rupa Chanda’s Reading, India’s service sector—Section 8

c) A. Vaidyanathan reading on Irrigation. Can also include other general analysis using
farm incomes and related concepts
d) Vijay Joshi’s reading on Requisites of Macroeconomic Stability