Travails of a Market in a Hurry

EPW Research Foundation Travails of a Market in a Hurry A The Policy Perspective AN avowed objective of the Reserve Bank of India (RBI) almost since the second half of the 1980s has been to dilute the importance of direct instruments of monetary control such as variation in reserve requirements for banks, regulation of the size and distribution of bank credit and administration of interest rates and to focus instead on indirect instruments, namely, to operate a monetary policy which is based on the level and structure of interest rates that are generally free and market-determined and on the conduct of open market operations in government securities. Initially, the reforms began with imparting some flexibility to the money and government securities markets, for which the recommendations of the two committees, the Committee to Review the Working of the Monetary System (Chairman: Sukhamoy Chakravarty. 1985) and its offshoot, the Working Group on the Money Market (Chairman: N Vaghul, 1987), formed the basis, though the actual changes effected turned out to be different in many respects from those recommendations. Besides, the socio-economic milieu of the period did not permit the RBI to introduce any of the radical changes suggested by the Chakravarty Committee, such as the inflation-linked rates of interest on 91-day treasury bills and 15- year dated government securities and the minimising of the concessional rales for priority, areas. Nevertheless, the measures undertaken during the second half of the 1980s, particularly those concerning money market operations, have had far-reaching significance.