Q8
(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 R.B.I. to encourage investment and maintain price-stability during this period. (20 marks) (b) Why in spite of massive expansion of institutional finance, contribution of non-institutional sources in providing agricultural credit is still predominant ? (15 marks) (c) What are the various forms of subsidies that go into agriculture sector in India ? What is the justification for these ? (15 marks)
हिंदी में प्रश्न पढ़ें
(a) विगत पांच वर्षों में, आर.बी.आई. द्वारा अपनायी गई मौद्रिक नीति के प्रमुख उद्देश्य क्या हैं ? इस अवधि में निवेश को प्रोत्साहन देने तथा कीमत-स्थिरता को बनाए रखने हेतु उठाए गए कदमों की विवेचना कीजिए । (20 अंक) (b) कृषि-साख प्रदान करने में संस्थागत वित्त में व्यापक प्रसार के बावजूद गैर-संस्थागत स्रोतों का योगदान सर्वाधिक क्यों है? (15 अंक) (c) भारत में कृषि क्षेत्र को प्राप्त होने वाले विभिन्न प्रकार के अनुदान कौन से हैं ? इनका क्या औचित्य है ? (15 अंक)
Directive word: Discuss
This question asks you to discuss. The directive word signals the depth of analysis expected, the structure of your answer, and the weight of evidence you must bring.
See our UPSC directive words guide for a full breakdown of how to respond to each command word.
How this answer will be evaluated
Approach
The directive 'discuss' demands a balanced, analytical treatment across all three sub-parts. Allocate approximately 40% of word budget to part (a) given its 20 marks, with ~30% each to parts (b) and (c). Structure: brief introduction framing monetary policy-agriculture nexus; body addressing each sub-part sequentially with clear sub-headings; conclusion synthesizing how RBI's monetary stance and agricultural subsidies together shape rural investment climate.
Key points expected
- Part (a): Post-2019 monetary policy objectives—flexible inflation targeting (4±2%), growth support during COVID-19, financial stability; specific tools like repo rate cuts (from 5.15% to 4% during pandemic), TLTRO, on-tap liquidity, pandemic emergency credit line
- Part (a): Investment promotion measures—corporate bond market development, scale-based regulation for NBFCs, UPI/digital payment infrastructure, regulatory sandbox; price stability through MPC decisions, forex intervention, buffer stock management coordination
- Part (b): Persistence of non-institutional credit—regional disparities in bank penetration (eastern UP, Bihar, tribal areas), land tenancy laws preventing mortgage, crop risk deterring formal lending, documentation hurdles, timely credit vs. procedural delays, moneylender flexibility
- Part (c): Input subsidies—fertilizer (urea price control, nutrient-based subsidy), irrigation (canal charges, electricity), credit (interest subvention, KCC), seed/technology, crop insurance (PMFBY); price support through MSP, market intervention
- Part (c): Justification—market failure in agriculture (price volatility, externalities, lumpy investment), food security imperative, equity for small farmers, WTO green box compliance debate, environmental sustainability tension
Evaluation rubric
| Dimension | Weight | Max marks | Excellent | Average | Poor |
|---|---|---|---|---|---|
| Concept correctness | 22% | 11 | Accurately distinguishes between monetary policy transmission mechanisms and fiscal subsidies; correctly identifies post-2019 RBI framework shifts (inflation targeting, liquidity management); precisely explains why informal credit persists despite SHG-bank linkage and PM-KISAN | Basic understanding of repo rate and subsidies but conflates monetary with fiscal policy; generic explanation of informal credit without structural factors; lists subsidy types without classification | Confuses monetary policy with fiscal policy; fundamental errors about RBI's mandate or subsidy mechanisms; irrelevant concepts like MGNREGA as monetary tool |
| Diagram / model | 14% | 7 | For (a): Draws liquidity adjustment facility corridor or monetary transmission mechanism diagram showing repo-reverse repo spread; for (b): McKinnon-Shaw financial deepening model or credit rationing diagram; for (c): Deadweight loss/efficiency-equity trade-off in subsidy targeting | Simple interest rate-growth diagram without monetary policy specifics; no diagram for credit market analysis; basic subsidy burden fiscal diagram | No diagrams where appropriate; incorrect LM-IS curves without context; diagrams mislabeled or irrelevant to Indian monetary framework |
| Quantitative reasoning | 18% | 9 | Cites specific data: CPI inflation trajectory (2019-2024), repo rate changes (cumulative 250 bps cut 2019-20), credit-deposit ratio regional variation, NABARD All India Rural Credit Survey data on informal share (~40% still), fertilizer subsidy as % of GDP (~0.7%), MSP-urea price ratio trends | Vague references to 'high inflation' or 'low interest rates' without numbers; rough estimate of informal credit share; mentions subsidy burden without fiscal magnitude | No quantitative evidence; invented statistics; confuses nominal and real rates or stock and flow concepts in credit analysis |
| Indian / empirical examples | 24% | 12 | For (a): Operation Twist (2019-20), TLTRO 2.0 for NBFCs, pandemic emergency credit line guarantee scheme; for (b): Andhra Pradesh SHG-bank linkage success vs. Marathwada moneylender dependence, regional NPA variation; for (c): PM-KISAN cash transfer vs. input subsidy debate, urea diversion to industry, Punjab-Haryana electricity subsidy distortion | Generic mention of MPC and KCC without specific schemes; no regional differentiation; standard MSP examples without implementation critique | No Indian examples; uses developed country monetary policy cases; irrelevant international comparisons without Indian adaptation |
| Policy implication | 22% | 11 | Synthesizes across parts: how monetary policy transmission fails in agricultural credit (broken interest rate channel for farmers); recommends direct benefit transfer over input subsidies per Jaitley-Niti Aayog arguments; suggests RBI-regulated agricultural NBFCs or KCC interest subvention reform; addresses WTO compliance and environmental sustainability in subsidy redesign | Separate policy conclusions for each part without integration; generic recommendations like 'more bank branches' or 'better targeting'; no critique of existing policy trade-offs | No policy implications; purely descriptive ending; contradictory recommendations (e.g., lower rates and higher reserve requirements simultaneously) |
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