Question:
"New Economic Policy 1991 altered the role of Reserve Bank of India (RBI) in the economy." Justify the given statement with valid explanation.
"New Economic Policy 1991 altered the role of Reserve Bank of India (RBI) in the economy." Justify the given statement with valid explanation.
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The New Economic Policy 1991 altered the role of Reserve Bank of India (RBI) from regulator to facilitator of the financial sector.
Updated On: Feb 3, 2025
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Solution and Explanation
- Focus on Monetary Policy: The RBI’s role shifted from managing public debt and funding the government to controlling inflation and maintaining monetary stability.
- Reduction in Directed Credit: The RBI reduced its control over credit allocation to different sectors, giving commercial banks more autonomy in lending decisions.
- Foreign Exchange Management: With liberalization, the RBI focused more on managing exchange rates and foreign capital flows.
- Banking Sector Reforms: RBI played a key role in implementing banking reforms, promoting competition, and adopting better practices in the financial sector.
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