As a part of Words of Wisdom series, Jain (Deemed-to-be University)’s School of Humanities and Social Sciences organized a guest lecture on ‘Role of RBI in GDP growth’ on 11 October 2017. The guest speaker of the day was Mr. N Gopal who is a General Manager for the Department of Banking Supervision, Reserve Bank of India, Bengaluru. The guest lecture was intended for MA Economics students of Jain (Deemed-to-be University) including students from MES, Mount Carmel, and Al Ameen College.
Mr. Gopal gave a brief prelude by presenting the Indian system which was a closed economy before 1991 and evolved into the current scenario where the demand and supply factors regulate the rate of interest. He emphasized on the two tools of monetary and fiscal policy which are used to control the conditions prevailing in the economy. Fiscal policy is the collective term for the taxing and spending actions of governments.
He accentuated more on the monetary policy during the session and opined that it is basically used by the RBI and plays the regulatory function (i.e. to increase or decrease money supply), to tweak the cost of money (interest rate) and to direct credit in certain areas (priority areas). He mentioned the Urjit Patel’s committee whose objective was to strengthen the monetary policy framework of the RBI. This expert committee was appointed to examine the current monetary policy framework of the Reserve Bank of India which states that inflation targeting should be the prime aim of the country. If the inflation level is not tolerable, people will invest in unproductive resources.
He also stated that tax rates and government spending are policy instruments which are used to regulate situations of inflation and deflation in the economy. There are several direct and indirect instruments that are used for implementing monetary policy such as the Repo Rate, Reverse Repo Rate, Liquidity Adjustment Facility (LAF), Marginal Standing Facility (MSF), Corridor, Bank Rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Open Market Operations (OMOs), and Market Stabilization Scheme (MSS).
He also spoke about the major functions undertaken by the RBI which are as follows:
- Issue of Bank Notes
- Banker to Government
- Custodian of Cash Reserves of Commercial Banks
- Custodian of Country's Foreign Currency Reserves
- Lender of Last Resort
- Central Clearance and Accounts Settlement
- The Controller of Credit
He explained each function and mentioned how credit control is crucial in the economy. There is a need to control microfinance institutions to endure order. He also brought up the phenomenon of recapitalization. About 13 lakh crores are bad debts which are owed to the banking system from various industries. As a solution to this, he mentioned the bankruptcy resolution laws. The National Company Law Tribunal has been set up to strengthen the same.
The insightful session concluded with a Q&A session with presenting a token of appreciation which was followed by proposing a vote of thanks.