This is a 'Sitter'—a fundamental concept question that defines your entry into the serious aspirant league. It tests basic macroeconomic literacy (Quantity Theory of Money) and institutional awareness (RBI vs. Govt roles). If you get this wrong, you are likely failing the exam due to weak basics, not lack of current affairs.
How this question is built
This question can be broken into the following sub-statements.
Tap a statement sentence to jump into its detailed analysis.
Statement 1
Is controlling inflation in India solely the responsibility of the Government of India?
Origin: Web / Current Affairs
Fairness: CA heavy
Web-answerable
"Under the Reserve Bank of India Act, 1934 (as amended in 2016), RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability, while keeping in mind the objective of growth."
Why this source?
- Explicitly assigns responsibility for conducting monetary policy—and maintaining price stability—to the Reserve Bank of India, indicating a non-governmental actor has primary inflation-related duties.
- Shows inflation control is a statutory central-bank responsibility, so it is not solely the Government of India’s task.
"This consistent moderation highlights the combined impact of the Reserve Bank of India’s calibrated monetary policy and the Government of India’s focused interventions to ease supply-side constraints and stabilise prices of essential commodities."
Why this source?
- Describes inflation moderation as the "combined impact" of the RBI’s monetary policy and Government interventions, directly attributing roles to both institutions.
- Supports the view that inflation control is shared between the RBI and the Government, not solely the Government.
"The Minister stated that the Government of India has undertaken a series of administrative measures, including fiscal and trade policy, to control inflation and mitigate its impact on the common citizen."
Why this source?
- Lists specific administrative, fiscal and trade measures undertaken by the Government to control inflation, showing the Government’s role but not exclusivity.
- Implies a complementary role to the RBI by describing government actions to mitigate inflationary impact.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > MEASURES TO CHECK INFLATION > p. 71
Strength: 5/5
“Inflation can be controlled by different measures. Inflation is controlled to ideal rates (zero rate of inflation is never preferred). For a developing country like India, desired rate of inflation is 3-4 per cent.
It is not easy to control inflation by using a specific measure or an instrument. The prime objective of any measure to check inflation is to reduce the flow of money supply in the economy or reduce the liquidity in the market. Following are the three categories of measures:
• A. Fiscal Measures \mathcal{C} B. Monetary Measures \mathcal{C} Administrative Measures \mathcal{C}”
Why relevant
Lists three categories of measures to control inflation: fiscal, monetary and administrative — implying multiple actors/instruments.
How to extend
A student can note fiscal = government, monetary = central bank (RBI), administrative = regulatory/other agencies, so control likely shared.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > A. Fiscal Measures > p. 72
Strength: 5/5
“The Government uses fiscal measures to control inflation. The two main components of fiscal policy are government revenue and government expenditure. Under fiscal policy, the government (not RBI) controls inflation and in the following ways: • By reducing private spending (by enhancing taxes on private businesses), i.e. when the 1. government reduces private spending by increasing taxes, individuals decrease their total expenditure; and the money supply in the economy is reduced.• 2. By decreasing non-developmental government expenditure.• 3. By avoiding deficit financing as far as possible. Use of option 2 above may not be feasible all the time as the Government expenditure may be required for ongoing projects and managing strategic sectors like health, education, defence, etc.”
Why relevant
Explicitly describes fiscal measures and states 'The Government uses fiscal measures... Under fiscal policy, the government (not RBI) controls inflation'.
How to extend
Combine this with knowledge that fiscal policy is only one of several measure types to infer government is a major but not sole actor.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.13 Monetary Policy > p. 60
Strength: 5/5
“The RBI Act 1934 provides for the inflation target to be set by the government of India, in consultation with the Reserve Bank, once in every five years.• The inflation is the "Consumer Price Index (CPI) – Combined" published by Ministry of Statistics and Programme Implementation (NSO)• The RBI shall be seen to have failed to meet the Target if inflation is more than 6% or less than 2% for three consecutive quarters• In case RBI fails to meet the target, it will have to give a written report to Government of India explaining the reasons of failure, remedial actions to be taken and an estimated time period within which the Target would be achieved The Government of India constituted "Monetary Policy Committee" (MPC) in September 2016 which now determines the Policy (Repo) Rate required to achieve the inflation target. • RBI should organize at least four meetings of Monetary Policy Committee (MPC) in a year.”
Why relevant
Says the GOI sets the inflation target in consultation with the RBI and constituted the Monetary Policy Committee (MPC) to determine policy (repo) rate.
How to extend
Use this to infer that GOI and RBI share institutional roles: GOI sets target while RBI/MPC implements monetary policy to meet it.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONETARY POLICY COMMITTEE > p. 172
Strength: 5/5
“The RBI Act, 1934, was amended in 2016 to provide a statutory and institutionalised framework for the creation of Monetary Policy Committee (MPC). MPC was set up in 2016 to meet the objective of Monetary Policy Framework Agreement (entered in 2015 between RBI and GOI) by entrusting RBI with the additional responsibility of inflation targeting, while keeping in mind the objective of economic growth. As per Monetary Policy Framework Agreement, RBI is responsible to contain annual inflation at 4 per cent (±2%) until March 2021 as per the current mandate. RBI is answerable to GOI if the inflation exceeds the range for three consecutive months.”
Why relevant
States the RBI (via MPC) was entrusted with inflation targeting and is responsible for containing annual inflation within a range; RBI is answerable to GOI if it misses the range.
How to extend
A student could combine this with the idea that operational responsibility lies with RBI whereas GOI has target-setting and oversight roles.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > RECENT EFFORTS BY THE GOVERNMENT TO CONTROL INFLATION > p. 75
Strength: 4/5
“The GOI has taken several steps to control inflation (especially on food items):
• Encouraging State governments to take strict action against hoarding and black marketing 1. and effectively enforce the Essential Commodities Act, 1955, and the Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities Act, 1980 for commodities in short supply.
• Facilitating ease of doing business which reduces various transactional and logistical 2. costs for producers.”
Why relevant
Provides examples of GOI administrative actions (e.g., enforcement against hoarding, Essential Commodities Act) to control food inflation.
How to extend
Shows the government has specific administrative levers for certain inflation sources, suggesting shared responsibilities depending on cause.
Statement 2
Does the Reserve Bank of India have no role in controlling inflation in India?
Origin: Web / Current Affairs
Fairness: CA heavy
Web-answerable
"There are several direct and indirect tools for implementing monetary policy. These include: 1. Repo Rate: The Repo Rate is the interest rate at which the Reserve Bank of India (RBI) loans money to commercial banks."
Why this source?
- Lists RBI's monetary policy instruments (e.g., Repo Rate, SDF), which are used to implement monetary policy and influence inflation.
- Explicitly describes tools the RBI uses to manage liquidity and interest rates — mechanisms through which inflation is controlled.
"One of the main goals of monetary policy in India is the control of inflation and the role of the Reserve Bank of India (RBI) in this process is rather important."
Why this source?
- States that control of inflation is one of the main goals of monetary policy in India.
- Explicitly says the role of the RBI in controlling inflation is important, directly contradicting the claim that it has no role.
"securing monetary stability in India and generally, to operate the currency and credit system of the country to its advantage"
Why this source?
- States the Reserve Bank's mandate includes 'securing monetary stability in India' and operating the currency and credit system — functions tied to inflation control.
- Notes the RBI's function of conducting monetary policy, which is the primary institutional channel for influencing inflation.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.13 Monetary Policy > p. 60
Strength: 5/5
“The RBI Act 1934 provides for the inflation target to be set by the government of India, in consultation with the Reserve Bank, once in every five years.• The inflation is the "Consumer Price Index (CPI) – Combined" published by Ministry of Statistics and Programme Implementation (NSO)• The RBI shall be seen to have failed to meet the Target if inflation is more than 6% or less than 2% for three consecutive quarters• In case RBI fails to meet the target, it will have to give a written report to Government of India explaining the reasons of failure, remedial actions to be taken and an estimated time period within which the Target would be achieved The Government of India constituted "Monetary Policy Committee" (MPC) in September 2016 which now determines the Policy (Repo) Rate required to achieve the inflation target. • RBI should organize at least four meetings of Monetary Policy Committee (MPC) in a year.”
Why relevant
States the RBI Act provides for an inflation target set by the government in consultation with the RBI and that the Monetary Policy Committee (MPC) determines the policy (repo) rate required to achieve the inflation target.
How to extend
A student can link 'MPC sets repo rate to achieve target' to the basic fact that interest‑rate changes affect borrowing and money demand, hence inflation expectations and price levels.
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > Central bank > p. 38
Strength: 5/5
“Central Bank is a very important institution in a modern economy. Almost every country has one central bank. India got its central bank in 1935. Its name is the 'Reserve Bank of India'. Central bank has several important functions. It issues the currency of the country. It controls money supply of the country through various methods, like bank rate, open market operations and variations in reserve ratios. It acts as a banker to the government. It is the custodian of the foreign exchange reserves of the economy. It also acts as a bank to the banking system, which is discussed in detail later.”
Why relevant
Defines central bank functions including controlling money supply through instruments like bank rate, open market operations and reserve ratios.
How to extend
Combine this with the standard macro rule that money supply influences inflation to infer that RBI tools can be used to affect inflation.
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > 3.4 POLICY TOOLS TO CONTROL MONEY SUPPLY > p. 42
Strength: 4/5
“Reserve Bank is the only institution which can issue currency. When commercial banks need more funds in order to be able to create more credit, they may go to market for such funds or go to the Central Bank. Central bank provides them funds through various instruments. This role of RBI, that of being ready to lend to banks at all times is another important function of the central bank, and due to this central bank is said to be the lender of last resort. The RBI controls the money supply in the economy in various ways. The tools used by the Central bank to control money supply can be quantitative or qualitative.”
Why relevant
Explicitly says the RBI controls the money supply and uses quantitative and qualitative tools to do so, and acts as lender of last resort to banks.
How to extend
A student can connect these tools (e.g., changing reserve requirements, open market operations) to how liquidity alterations can curb or fuel inflation.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > MEASURES TO CHECK INFLATION > p. 71
Strength: 4/5
“Inflation can be controlled by different measures. Inflation is controlled to ideal rates (zero rate of inflation is never preferred). For a developing country like India, desired rate of inflation is 3-4 per cent.
It is not easy to control inflation by using a specific measure or an instrument. The prime objective of any measure to check inflation is to reduce the flow of money supply in the economy or reduce the liquidity in the market. Following are the three categories of measures:
• A. Fiscal Measures \mathcal{C} B. Monetary Measures \mathcal{C} Administrative Measures \mathcal{C}”
Why relevant
Explains that monetary measures are a main category for checking inflation and that the prime objective is to reduce money flow or liquidity in the market.
How to extend
Using the rule that monetary measures reduce liquidity, a student can infer that the institution controlling monetary instruments (RBI) is relevant to controlling inflation.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONETARY POLICY REPORT AND FINANCIAL STABILITY REPORT > p. 173
Strength: 3/5
“The Reserve Bank of India (RBI) publishes Monetary Policy Report (MPR) after every 6 months to explain the sources and forecasts of inflation for the coming period of 6-18 months.
The RBI also publishes Financial Stability Report (FSR) biannually which reflects an assessment of the sub-committee of the Financial Stability and Development Council (FSDC) on the risks to financial stability.
(Before the examination, aspirants may benefit by reading the most recent MPR and FSR published by RBI.)”
Why relevant
Notes RBI publishes a Monetary Policy Report to explain sources and forecasts of inflation for the coming period, implying an ongoing analytic and policy role vis‑à‑vis inflation.
How to extend
A student could view regular forecasting and public policy communication as evidence of an operational role in managing and responding to inflation dynamics.
Statement 3
Does a decrease in money circulation (reduced money supply) help to control inflation in India?
Origin: Direct from books
Fairness: Straightforward
Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > MEASURES TO CHECK INFLATION > p. 71
Presence: 5/5
“Inflation can be controlled by different measures. Inflation is controlled to ideal rates (zero rate of inflation is never preferred). For a developing country like India, desired rate of inflation is 3-4 per cent.
It is not easy to control inflation by using a specific measure or an instrument. The prime objective of any measure to check inflation is to reduce the flow of money supply in the economy or reduce the liquidity in the market. Following are the three categories of measures:
• A. Fiscal Measures \mathcal{C} B. Monetary Measures \mathcal{C} Administrative Measures \mathcal{C}”
Why this source?
- Explicitly states the prime objective of measures to check inflation is to reduce the flow of money supply / liquidity in the market.
- Places reducing money supply/liquidity as central to monetary (and fiscal/administrative) anti-inflation measures.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 64
Presence: 5/5
“To ease the threat of currency appreciation or inflation, central banks often attempt what is known as the "sterilization" of capital flows. In a successful sterilization operation, the domestic component of the monetary base/ money supply is reduced to offset the inflow of capital, at least temporarily. In theory, this can be achieved by encouraging private investment overseas, or allowing foreigners to borrow from the local market. But the classical form of sterilization, however, has been through the use of open market operations, that is, selling Treasury bills and other securities by RBI to reduce the domestic component of the monetary base/ money supply. [Reverse repos and outright Open market operation sales demanded the availability of adequate stock of Govt. securities with the RBI, which became a constraining factor in sterilisation operations as the volume of capital inflows expanded.”
Why this source?
- Describes RBI's use of open market operations (selling government securities) to reduce the domestic monetary base / money supply to ease inflation.
- Links specific central-bank instruments (sterilisation, OMO) to the goal of reducing money supply to counter inflationary pressures.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > There are mainly two causes of inflation: > p. 113
Presence: 4/5
“Deflation: A general decline in prices, often caused by a reduction in the supply of money. Deflation can also be caused by a decrease in government, personal or investment spending. The opposite of inflation, deflation is bad because of the following reason: When prices start falling i.e., there is deflation, people become less willing to spend and postpone their purchase decisions. This is because when prices are falling, just sitting on cash becomes an investment with a positive real yield. This decreases the demand in the economy and prices fall further and economy slows down. People are less willing to borrow also even for a productive investment because it has to be repaid in rupees that are worth more than the rupees borrowed.”
Why this source?
- Defines deflation as a general decline in prices often caused by a reduction in the supply of money, implying lower money supply reduces price levels.
- Explains economic transmission: reduced money supply can lower demand and prices, illustrating the mechanism by which inflation can be checked (or overshoot to deflation).
Statement 4
Does an increase in money circulation (expanded money supply) help to control inflation in India?
Origin: Web / Current Affairs
Fairness: CA heavy
Web-answerable
"this money goes into circulation. Hence, the total effective money supply in the economy goes up. In this situation, even if there is no change in the behaviour of the RBI and GOI, there will be inflationary"
Why this source?
- States that when savings are put into banks and mutual funds the money goes into circulation and total effective money supply rises.
- Explicitly links increased money in circulation to inflationary pressures, implying expansion of money supply does not control inflation.
"with the objective of controlling inflation through limiting monetary expansion, reserve money was used as operating target and broad money as intermediate target."
Why this source?
- Describes adoption of monetary targeting with the objective of controlling inflation by limiting monetary expansion.
- Implies that reducing or limiting growth in money supply is a policy tool to contain inflation in India.
"To control inflation: The RBI increases the repo rate. ... This reduces the amount of money in circulation, cooling down the economy and curbing inflation."
Why this source?
- Explains RBI policy: to control inflation the RBI increases the repo rate which reduces the amount of money in circulation.
- Shows policy logic that reducing money circulation (not increasing it) cools the economy and curbs inflation.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.1 Introduction > p. 38
Strength: 5/5
“So, a layer of commercial banks was created between RBI and the public. In any particular year, suppose there is some level of output/GDP and some level of money supply in the economy. Now, next year, RBI tries to increase the money supply in the economy based on two factors; one is the expected real GDP growth and the other is the level of inflation (that RBI wants to maintain/target in the economy). So, basically money supply is increased proportional to the expected nominal GDP. Money supply chases the output and inflation will depend on the proportion of output (GDP) and money supply.”
Why relevant
States that RBI increases money supply relative to expected nominal GDP and that inflation depends on the proportion between money supply and output.
How to extend
A student could compare recent nominal GDP growth and RBI's money supply growth rates to judge whether money growth likely fuels inflation or matches output expansion.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > MEASURES TO CHECK INFLATION > p. 71
Strength: 5/5
“Inflation can be controlled by different measures. Inflation is controlled to ideal rates (zero rate of inflation is never preferred). For a developing country like India, desired rate of inflation is 3-4 per cent.
It is not easy to control inflation by using a specific measure or an instrument. The prime objective of any measure to check inflation is to reduce the flow of money supply in the economy or reduce the liquidity in the market. Following are the three categories of measures:
• A. Fiscal Measures \mathcal{C} B. Monetary Measures \mathcal{C} Administrative Measures \mathcal{C}”
Why relevant
Explains that measures to check inflation primarily aim to reduce the flow of money supply or liquidity in the market.
How to extend
Use this rule to infer that increasing money supply would work against these anti-inflation measures and thus is unlikely to control inflation.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 64
Strength: 5/5
“10. Market Stabilization Scheme (MSS)/ Sterilization: Many developing countries have reaped handsome rewards from surging capital inflows in recent years. This is widely regarded as a very welcome phenomenon, raising levels of investment and encouraging economic growth. But surging capital inflows can also lead to destabilizing side effects, including a tendency for the local currency to appreciate, undermining the competitiveness of export industries, and potentially giving rise to inflation. Why inflation? When foreign investors bring foreign currency/dollars, ultimately this dollar comes to RBI and new money/currency is given by RBI to the investors which increase money supply (and monetary base) in the economy without a corresponding increase in production: too much money begins to chase too few goods and services resulting in inflation.”
Why relevant
Gives an example (capital inflows and MSS) showing that increased money supply without matching production leads to 'too much money chasing too few goods', causing inflation.
How to extend
Apply this example to India by checking if money supply increases occurred without corresponding output increases, which would suggest rising inflation rather than control.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Impact of "Monetization of Deficit" > p. 165
Strength: 4/5
“• Helps in increasing aggregate demand in the economy thereby resulting in economic growth• Results in increase in debt on Government thereby impacting overall macro-economic stability and may result in ratings downgrade• Increases inflation due to increased money supply• Increased money supply may result in depreciation of rupee which can lead to flight of capital from the country• RBI can be seen as losing control over its monetary policy• As such there is no issue if it is done once in exceptional circumstances but in India the problem is once it is done, then it will lure future governments of an easy route of financing their deficit "Deficit Financing": It generally means that Govt. is having deficit (as expenses are more than receipts) which can be financed from different sources like from market borrowing or borrowing from abroad or there can also be the case that Govt may ask RBI to finance its deficit by printing more money. (So, in deficit financing there can be various options to finance Govt.'s deficit and one of the options could be from RBI by printing cash)”
Why relevant
Notes that monetization of deficit (printing money) increases aggregate demand and 'increases inflation due to increased money supply'.
How to extend
Examine episodes of deficit financing in India and subsequent inflation outcomes to test whether expanding money supply controlled or raised inflation.
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > 3.4 POLICY TOOLS TO CONTROL MONEY SUPPLY > p. 42
Strength: 4/5
“Notice that in the previous case, Rs 100 in reserves could support deposits of Rs 400. But the banking system would now be able to loan Rs 300 only. It would have to call back some loans to meet the increased reserve requirements. Hence, money supply would fall. Another important tool by which the RBI also influences money supply is Open Market Operations. Open Market Operations refers to buying and selling of bonds issued by the Government in the open market. This purchase and sale is entrusted to the Central bank on behalf of the Government. When RBI buys a Government bond in the open market, it pays for it by giving a cheque.”
Why relevant
Describes RBI tools (reserve requirements, open market operations) by which money supply is directly controlled, implying a causal policy link between money supply and inflation control.
How to extend
A student could review when RBI tightened vs eased these tools and correlate those periods with inflation trends to infer the effect of money supply changes.
Pattern takeaway:
UPSC consistently tests 'First Principles' in Economy. They strip away complex jargon to ask the core logic: 'Does printing money raise prices?' They also love testing the boundary lines between Government power (Fiscal) and Central Bank power (Monetary).
How you should have studied
- [THE VERDICT]: Sitter. Direct from NCERT Class XII Macroeconomics (Chapter 3) or any standard economy primer (Vivek Singh/Singhania).
- [THE CONCEPTUAL TRIGGER]: The 'Transmission Mechanism' of Monetary Policy. How does changing the Repo rate actually affect the price of onions?
- [THE HORIZONTAL EXPANSION]: Memorize the Inflation Targeting Framework (4% +/- 2%, set by Govt, maintained by RBI); Composition of MPC (3 RBI + 3 Govt nominees); Difference between Headline (CPI-C) and Core Inflation; and the Urjit Patel Committee recommendations.
- [THE STRATEGIC METACOGNITION]: Do not just memorize 'RBI fights inflation'. Visualize the flow: RBI sucks liquidity $\rightarrow$ Money becomes scarce $\rightarrow$ Interest rates rise $\rightarrow$ Consumption drops $\rightarrow$ Prices cool down.
Concept hooks from this question
👉 Fiscal, Monetary and Administrative Measures to Control Inflation
💡 The insight
References classify inflation-control tools into fiscal, monetary and administrative measures, showing multiple instruments and actors are involved rather than a single authority.
High-yield for UPSC because questions often ask which policy (fiscal/monetary/administrative) or which institution is responsible for inflation control. Mastering this helps answer policy-role and policy-effect questions, and to analyse trade-offs. Preparation: learn definitions, mechanisms (how taxes/spending affect demand; how liquidity management works) and example measures.
📚 Reading List :
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > MEASURES TO CHECK INFLATION > p. 71
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > A. Fiscal Measures > p. 72
🔗 Anchor: "Is controlling inflation in India solely the responsibility of the Government of..."
👉 RBI–GOI Institutional Framework and Inflation Targeting (MPC)
💡 The insight
Evidence shows inflation targets are set by the Government in consultation with the RBI and that the Monetary Policy Committee (RBI) sets policy rates—indicating shared responsibilities and an institutional arrangement.
Crucial for UPSC since institutional roles (RBI vs GOI, MPC, statutory framework) are frequently tested in polity-economy overlap questions. Understand the framework agreement, role of MPC, and accountability mechanisms. Preparation: focus on RBI Act amendments, target-setting process and operational tools (repo rate), and implications for central bank independence.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.13 Monetary Policy > p. 60
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > Numerical Target of CPI-Based Inflation > p. 73
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONETARY POLICY COMMITTEE > p. 172
🔗 Anchor: "Is controlling inflation in India solely the responsibility of the Government of..."
👉 Deficit Financing / Monetisation and Inflationary Consequences
💡 The insight
References link government deficit financing (including RBI financing/monetisation) to increased money supply and higher inflation, showing how GOI fiscal choices interact with monetary control.
Important for UPSC because questions probe fiscal-monetary interactions and macroeconomic stability. Mastering this explains why both GOI and RBI actions matter for inflation and informs answers on risks of monetisation. Preparation: study mechanics of deficit financing, monetisation, and their inflationary and macroeconomic effects.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Impact of "Monetization of Deficit" > p. 165
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > A. Fiscal Measures > p. 72
🔗 Anchor: "Is controlling inflation in India solely the responsibility of the Government of..."
👉 Inflation Targeting & the Monetary Policy Committee (MPC)
💡 The insight
The references state that inflation targeting is the framework for policy and that the MPC (constituted by the Government) determines the policy/repo rate to achieve the target.
High-yield for UPSC: questions often ask who sets inflation targets, how policy rates are determined, and the institutional roles (Govt vs RBI/MPC). Understanding this clarifies responsibility-sharing and accountability (e.g., reporting when targets miss). Study the RBI Act provisions, MPC remit, and practical implications for rate-setting.
📚 Reading List :
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.13 Monetary Policy > p. 60
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > The Committee (in its report in 2014) recommended for focusing on only one objective, i.e. INFLATION TARGETING. > p. 73
🔗 Anchor: "Does the Reserve Bank of India have no role in controlling inflation in India?"
👉 RBI's Monetary Tools and Control over Money Supply
💡 The insight
Sources describe the RBI as the central bank that controls money supply via instruments (bank rate, OMO, reserve ratios) and that reducing money flow/liquidity is a monetary measure to check inflation.
Essential concept: many UPSC questions tie inflation outcomes to central bank actions (quantitative/qualitative tools). Master this to answer questions on transmission, instrument choice, and policy trade-offs. Focus on the tools, their mechanism, and effects on liquidity and inflation.
📚 Reading List :
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > Central bank > p. 38
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > 3.4 POLICY TOOLS TO CONTROL MONEY SUPPLY > p. 42
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > MEASURES TO CHECK INFLATION > p. 71
🔗 Anchor: "Does the Reserve Bank of India have no role in controlling inflation in India?"
👉 Monetary Policy Report (MPR) & Inflation Forecasting
💡 The insight
The RBI publishes the MPR explaining sources and forecasts of inflation for the medium term, indicating an active analytical and forecasting role in inflation management.
Important for answering contemporary and analytical questions: shows how RBI communicates, justifies policy, and frames expectations. Aspirants should review MPR structure, regularity, and how forecasts guide policy decisions.
📚 Reading List :
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONETARY POLICY REPORT AND FINANCIAL STABILITY REPORT > p. 173
🔗 Anchor: "Does the Reserve Bank of India have no role in controlling inflation in India?"
👉 Monetary measures to check inflation (reducing money supply)
💡 The insight
References state the prime objective of anti-inflation measures is to reduce money supply/liquidity to control inflation.
High-yield topic for UPSC economics: explains the broad policy approach to inflation control and is often tested in questions on monetary policy and macroeconomic management. Connects to fiscal policy, RBI objectives, and inflation-control case studies; prepare by linking theory (how money supply affects aggregate demand) with RBI policy examples.
📚 Reading List :
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > MEASURES TO CHECK INFLATION > p. 71
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 64
🔗 Anchor: "Does a decrease in money circulation (reduced money supply) help to control infl..."
The 'Next Logical Question' is on the Monetary Policy Committee (MPC) voting mechanics. While the Govt sets the target (Section 45ZA), the RBI Governor has the 'casting vote' in a tie. Also, look out for 'Sterilization'—the specific act of RBI mopping up excess foreign capital to prevent domestic inflation.
Use the 'Extreme Absolutism' hack. Option [A] says 'Government... ONLY' and Option [B] says 'RBI has NO role'. In a complex mixed economy like India, no major variable is controlled by a single entity exclusively. Eliminate [A] and [B] instantly. Between [C] and [D], apply basic supply-demand logic: Less money chasing goods = lower prices.
Link this to GS-3 (Inclusive Growth). Inflation is often called a 'Regressive Tax' because it hits the poor hardest. However, aggressive inflation control (tight money) can choke credit to MSMEs, hurting employment. This is the 'Growth-Inflation Trade-off' you must discuss in Mains.