What is the primary objective of monetary policy in India?

The correct answer is - Controlling inflation and stabilizing the economy

Key Points

• Controlling inflation and stabilizing the economy
  • The primary objective of monetary policy in India is to maintain price stability while ensuring sufficient flow of credit to productive sectors.
  • Price stability involves controlling inflation, which helps in maintaining the purchasing power of the currency.
  • Stabilizing the economy includes measures to smooth out economic cycles, avoiding excessive booms and busts.
  • The Reserve Bank of India (RBI) uses tools such as repo rate, cash reserve ratio (CRR), and open market operations to achieve these objectives.

Additional Information

• Maximizing government revenue
  • This is typically the objective of fiscal policy, not monetary policy.
  • Fiscal policy involves government spending and taxation decisions made to influence the economy.
• Increasing fiscal deficit
  • Increasing fiscal deficit is not a goal of any economic policy; rather, it is a situation where government expenditures exceed its revenue.
  • A high fiscal deficit is generally viewed as negative because it may lead to higher public debt and potential inflationary pressures.
• Promoting black money circulation
  • Black money refers to funds earned through illegal means or on which taxes have not been paid.
  • Promoting black money circulation is not an objective of any legitimate economic policy and is detrimental to the economy.