(a) What are the main objectives of monetary policy adopted by the R.B.I. during last 5 years ? Discuss the steps taken by the…

(a) Monetary Policy Objectives and Steps by the RBI (2019–2024)

Over the past five years, the Reserve Bank of India’s (RBI) monetary policy has operated under the Flexible Inflation Targeting (FIT) framework under Section 45ZA of the RBI Act, mandating a headline CPI target of 4% (±2%) while explicitly factoring in economic growth. During this period, the primary objectives were stabilizing output during the COVID-19 pandemic, preserving macroeconomic and financial stability, and re-anchoring medium-term inflation expectations amidst global geopolitical turbulence.

To encourage investment and revive growth during the pandemic downturn, the Monetary Policy Committee (MPC), which had already cut the repo rate from 6.50% to 5.15% during 2019 to counter a slowdown, cut it further to an accommodative 4.00% by May 2020 and reduced the CRR to 3%; it also bought government bonds under G-SAP and allowed loan moratoria and one-time restructuring. The RBI deployed unconventional liquidity measures including Targeted Long-Term Repo Operations (TLTRO), on-tap liquidity windows for contact-intensive and healthcare sectors, and special refinance facilities to institutions like NABARD and SIDBI alongside the Emergency Credit Line Guarantee Scheme. On the structural side, private investment was catalyzed through the development of the corporate bond market, the implementation of Scale-Based Regulation for Non-Banking Financial Companies (NBFCs) to mitigate systemic risk, the rollout of a regulatory sandbox for fintech innovations, and the aggressive expansion of digital payments infrastructure via UPI.

To maintain price stability amidst post-pandemic supply shocks and commodity price spikes, the MPC pivoted toward withdrawal of accommodation, hiking the repo rate by 250 basis points to 6.50% between May 2022 and February 2023. It introduced the Standing Deposit Facility (April 2022) as the floor of the liquidity corridor and raised the CRR to 4.5%. The RBI utilized Variable Rate Reverse Repo (VRRR) auctions to absorb durable surplus liquidity, conducted proactive foreign exchange interventions to prevent disorderly rupee depreciation and curb imported inflation, and closely coordinated monetary stance with fiscal buffer stock releases of essential food items. As inflation fell below target in 2025, the RBI cut the repo rate to 5.25% and the CRR to 3%, showing that the framework allows growth support once price stability is secured.

(b) Persistence of Non-Institutional Agricultural Credit

Despite substantial institutional credit expansion through commercial banks, Cooperatives, and Regional Rural Banks, non-institutional sources (moneylenders, commission agents, and landlords) remain important for several structural reasons. Institutional sources now supply about two-thirds of the debt of agricultural households (Situation Assessment Survey, 2019), but moneylenders still account for about a fifth, and informal sources dominate for marginal farmers, tenants and households in eastern and central India.

First, severe regional disparities persist in branch penetration, leaving states like Bihar, eastern Uttar Pradesh, and central tribal belts underserved compared to southern states. Second, rigid land tenancy laws and informal leasing arrangements prevent oral lessees, tenant farmers, and sharecroppers from demonstrating formal land titles or legal mortgageability to obtain bank loans. Third, high inherent production and climate risks lead risk-averse institutional lenders to enforce cumbersome documentation hurdles, strict collateral norms, and lengthy procedural delays. In contrast, non-institutional lenders offer immediate, documentation-free, and flexible credit lines. Furthermore, moneylenders readily finance consumption, social, and emergency needs that formal banks exclude, operating via interlinked credit-commodity-labor markets that provide customized accessibility despite usurious interest rates.

(c) Agricultural Subsidies: Forms and Justifications

Subsidies in Indian agriculture are channeled via input support and price interventions:

• Input Subsidies: Statutory price controls on urea alongside the Nutrient-Based Subsidy (NBS) for phosphatic and potassic fertilizers; subsidized power and canal irrigation charges provided by state governments; concessional credit under the Interest Subvention Scheme through Kisan Credit Cards (KCC); seed and farm mechanization subsidies; and premium subventions under the Pradhan Mantri Fasal Bima Yojana (PMFBY).
• Price Support: Minimum Support Prices (MSP) backed by procurement via the Food Corporation of India, PM-AASHA for pulses and oilseeds, and the Market Intervention Scheme (MIS) for perishable crops.
• Direct income support: PM-KISAN (₹6,000 a year) and similar State schemes.

The economic justification rests on correcting pervasive market failures in agriculture, where high yield variability, lumpy capital investments, and systemic price volatility depress private capital formation. Subsidies lower the cost of cultivation, preserving farm incomes and ensuring equity for small and marginal farmers who comprise over 86% of operational holdings. They underpin national food security by maintaining high aggregate output for public distribution. While these supports face scrutiny under WTO Amber Box disciplines regarding trade distortion, India justifies them under public stockholding for food security and development provisions, protected by the 'peace clause' agreed at the WTO Bali Ministerial (2013). However, untargeted input subsidies create tensions with environmental sustainability, causing soil degradation and groundwater depletion.