Economy, asked by kriti1403, 1 year ago

how is RBI helpful to Indian economy

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Answered by Anonymous

Well it prints money, it can increase or decrease the money supply of an economy by printing money, It has control over inflation. It decides what should be the fraction of total deposits which is to be held with commercial banks . This is why Indian banking system is known as fractional reserve system. Indirectly RBI is deciding how much amount of money will be in the hand of general public ,so demand for money may decline or rise which have further effect on aggregate demand .In order to push up the growth of Indian economy RBI can do so.

Recent example is : Demonisation policy initiated under BJP government in which the old currency is no more legal to be accepted by RBI and in any part of the world. The lines are: "I promise to pay the bearer the sum of five hundred rupees" now the currency is departed. RBI won't accept the old currency and there is no promise to pay 500 rs by RBI and in the upper middle side of note “guaranteed by the central government” is written. Both government and RBI are linked to each other. The Govt cannot push economy upward without RBI.

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Arpit Kumar Parija

Arpit Kumar Parija, Fellow Economics & Finance, Indian Institute of Management Calcutta

Answered Jan 24, 2017

Well RBI,the central bank of our country: the name says it all how important this institution is to Indian Economy.

Like any other central bank, RBI is the primary driver of monetary policy of our country. How much notes should be there in system(liquidity) gets affected when RBI announces its move on interest rate. Inflation targeting and giving a boost to growth by making credit available at cheaper rate for investors are two major important concerns which RBI looks at before taking a stance on monetary policy as these two are on opposite path( one happens at the expense of other i.e. if u want loan at cheap rate and subsequent growth, be ready to experience inflation and vice-versa.

Also banking sector and certain financial institutions like micro-finance institutions etc. are controlled by RBI.

RBI also controls the value of Rupee i.e. how well it performs in comparison to other currency (EXCHANGE RATE). Forex Reserve is one of the important tool at RBI’s hand which it can use to control exchange rate.

These are generally major things which comes under RBI’s ambit.

( I tried to keep the answer on a general level not going into details. In reality the role of RBI is way more than what is mentioned and also a lot of complex.)

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Rishab Atroley

Rishab Atroley, Knows a thing or two. Thats about it

Answered Sep 27, 2016

The RBI is central bank of the Republic of India. Its job is to store money of the government and commercial bank. The RBI is responsible for printing money and has the sole authority to do so. This regulates the amount of money in circulation and can control inflation. The RBI sets the monetary policy of India which has to do with things like interest rates. If they RBI raises them, spending can reduce, if they increase it, spending can increase.(borrowing becomes easier; less interest to be paid on loans). They also decide the exchange rate. If the rupee appreciates, exports can reduce because it gets more expensive for buyers to well, buy. As a result, imports can increase because its cheaper than it was before the appreciation. eg take two values of rupee to dollar. 2015 $1 = Rs 60 and in 2016 $1 = Rs 50.

If a good costs $100 (2015 and 2016) in 2015, it cost Rs6000 but in 2016 it cost Rs 5000. Hence cheaper as an import. If a good cost Rs 6000 in 2015, it cost $100 but the same good at the same rupee value in 2016 will be $120. So exports become expensive. (Note: Just because a currency appreciates relative to one currency does not mean it will appreciate relative to all currencies. So if the rupee appreciates against the pound, it may not appreciate against the yen and may even depreciate against another currency)

This can affect the balance of payments.

This is all that came to mind on the spot. Let me know if I missed something or if I need to be corrected.

I hope it's can help you

Answered by neildcruz05

The master of all banks, the saviour of government in case of debts, the lender of last resort RBI(reserve bank of India) is the main key of Indian economy to unlock the doors of development, inflation, employment and growth also.

How does RBI affect Indian economy?

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how is RBI helpful to Indian economy