Area Role
1. Monetary Policy Uses tools like repo rate, reverse repo, CRR, SLR, OMOs to
Implementation maintain price stability and control inflation.
2. Inflation Targeting Under Flexible Inflation Targeting Framework (FIT), RBI
targets 4% CPI inflation (±2%) via the Monetary Policy
Committee (MPC).
3. Regulator of Banks Supervises banks and NBFCs under the Banking Regulation
Act, 1949, ensuring financial soundness and protecting
depositors.
4. Issuer of Currency Sole authority for issuing legal tender (except coins), under
Section 22 of the RBI Act.
5. Foreign Exchange Manages India’s forex reserves, controls rupee volatility, and
Management implements FEMA, 1999.
6. Government's Banker Manages public debt, conducts borrowing programs, and
and Debt Manager facilitates Ways and Means Advances (WMA).
7. Financial Inclusion & Promotes digital payments, regulates fintech, and fosters
Innovation initiatives like Jan Dhan, UPI, CBDC (Digital Rupee).
8. Developmental Role Sets guidelines for priority sector lending, supports rural credit,
and regulates cooperative banks.
Role of RBI
Critical Analysis of RBI’s Role – Issues & Challenges
Challenge Details Data / Example
Weak Monetary Repo rate changes don’t fully reflect 250 bps repo hike (2022–23) →
Transmission in lending/borrowing rates. lending rates rose only ~150 bps
(RBI Bulletin)
Fiscal Dominance Government borrowing pressures 2020–21 fiscal deficit: 9.2% of
RBI to support growth at cost of GDP; RBI did OMOs and WMA to
inflation control. monetize deficit
Supply-Side Monetary policy ineffective against Food inflation = 65% of CPI
Inflation food/fuel inflation. (April 2024, MoSPI); Onion/wheat
price spikes
Growth vs RBI faces dual pressure: support Delayed repo hikes post-COVID,
Inflation Trade-Off growth while containing inflation. inflation >6% (2022) while stance
stayed accommodative
Global Spillovers External rate hikes (like Fed) force Forex reserves dropped $642B →
RBI into defensive policy shifts. $525B (2021–22) due to RBI
interventions
Weak NBFC & Fast-growing sectors outpace RBI IL&FS (2018), DHFL (2019); RBI
Fintech Regulation oversight, causing systemic risks. issued Digital Lending Guidelines
(2022)
Digital Currency & e₹ adoption and ecosystem CBDC still largely in trial stage,
Tech Transition readiness remain underdeveloped. limited usage in retail (2024)
Monetary-Fiscal Lack of synergy can hamper policy Past tensions over dividend transfer;
Coordination effectiveness and macro stability. differing views on inflation-growth
balance
Way Forward for Strengthening the Role of RBI
Area of Reform Way Forward / Committee Committee / Report
Recommendation
Monetary Policy Ensure clear communication of monetary Urjit Patel Committee
Transparency policy stance and inflation outlook to (2014) on Monetary Policy
enhance predictability. Reform
Strengthen Inflation Review the inflation target periodically and RBI MPC Framework
Targeting allow for some flexibility in volatile Review (2021)
supply-side situations.
Improve Monetary Link more lending products to external Internal Study Group on
Transmission benchmarks like the Repo Rate and reduce MCLR Transmission
reliance on MCLR. (2017)
Digital Currency Build secure infrastructure and educate RBI Report on CBDC
Ecosystem users for better retail adoption of CBDC (2021)
(e₹).
NBFC and Shadow Implement tighter regulation and Usha Thorat Committee
Banking Regulation supervision, align NBFCs' norms with (2011) on NBFCs
banks gradually.
Fintech and Digital Create a unified digital financial Working Group on
Lending Oversight regulation framework, ensure data Digital Lending (2021)
privacy, ethical lending.
Macro-Financial Strengthen macroprudential surveillance Financial Stability
Stability tools to manage systemic risks across Report (RBI Bi-annual)
institutions and markets.
RBI-Government Set up a structured Monetary-Fiscal FRBM Review
Coordination Coordination Council, maintaining RBI’s Committee (N.K. Singh,
autonomy while aligning objectives. 2017)
Capital and Reserve Follow transparent guidelines for RBI Bimal Jalan Committee
Framework dividend transfer to Government to avoid (2019) on Economic
politicization. Capital Framework
Financial Inclusion Deepen credit access via tech (e.g., UPI, Rangarajan Committee
& Literacy digital KYC), and invest in nationwide on Financial Inclusion
financial education. (2008)
