Question 71 from UPSC CSE 2022 - Economics

Question

In India, which one of the following is responsible for maintaining price stability by controlling inflation?

Accepted Answer

Correct Option: D. Reserve Bank of India

Strategy: - Focus on the core mandates of central banks: price stability and controlling inflation.
- Identify the Reserve Bank of India (RBI) as India's central bank, responsible for monetary policy instruments.
- Disregard other entities (Consumer Affairs, Expenditure Management, FSDC) that lack direct monetary roles and responsibilities.

Key Info: ## Reserve Bank of India (RBI)
- **Establishment:** Founded in 1935 under the Reserve Bank of India Act, 1934. It serves as India's central bank.
- **Primary Objectives:** Conduct monetary policy, ensure price stability, and support economic growth.
- **Monetary Policy Tools:** Utilizes instruments such as the repo rate, reverse repo rate, cash reserve ratio, and open market operations to influence inflation.

## Monetary Policy Committee (MPC)
- Created by the Finance Act, 2016 (amending the RBI Act).
- Responsible for setting policy interest rates to achieve the Government of India's notified inflation target (currently 4% with a tolerance band of ±2%).

## Other Related Bodies
- **Department of Consumer Affairs:** Works to protect consumer interests and monitors prices of essential commodities, but lacks the power to conduct or regulate monetary policy.
- **Expenditure Management Commission:** A temporary advisory body aimed at rationalizing public expenditure--not managing inflation.
- **Financial Stability and Development Council (FSDC):** A coordinating body for financial sector stability, not directly involved in monetary policy.

## Conclusion
- Only the RBI holds the legal, operational, and functional capacity and mandate to control inflation and maintain macroeconomic price stability.

Answer

Option A: Department of Consumer Affairs

Answer

Option B: Expenditure Management Commission

Answer

Option C: Financial Stability and Development Council