1. Measures of Monetary policy of India
In order to carry out its monetary policy the RBI has adopted the
following measures:
a) Measures for Expansion of currency
Management of currency is one of the core central banking
function of the RBI. In term of section 22 of Reserve Bank of India
Act, the RBI is the sole authority for issue of currency in India. The
Reserve Bank has the objective of ensuring an adequate supply of
clean and genuine notes as required by the public.

2. b) Measures of Credit Control:
One of the important function of the RBI is the controlled expansion
of bank credit and money supply with special attention to the
seasonal requirement for credit without affecting the output.
Monetary authority has control over the decisions regarding the
allocation of credit to priority sector and small borrowers.
It is an important tool used by the RBI to control the
demand and supply of money(liquidity) in the economy. RBI focuses
on its objective of “Economic development with stability”. It means
bank will not only control inflationary trends in economy but also
boost economic growth which would ultimately lead to increase in
real income with stability.

3. Instruments for Credit Control under monetary
policy
Control of credit is one of the main objective of monetary policy in
India. Control of credit means increase or decrease of the flow of
credit in the economy in accordance with its need.
Reserve Bank of India adopts all those measures for the
control of credit which central bank in other countries.
These instruments may be classified as:
1. Quantitative Credit Control
2. Qualitative Credit Control

4. (A) Quantitative Credit Control
Quantitative Credit Control means to control the total
quantum of credit in the economy.
Under this, RBI has adopted the following instruments:
(1)Bank Rate: Section 49 of RBI Act 1934,defines Bank Rate as “the
standard rate at which RBI is prepared to buy or re-discount bills
of exchange or other commercial paper eligiable for purchase
under this act. In India: RBI , NABARD, SID BI etc. allow the banks
to re discount such bill with them and provide the fund.
Changes in bank rate are introduced with a view to
controlling the price level and business activity, by changing the
demand for loan. Its working is based upon the principle that
changes in the bank rate results in changed interest rate in the
market. Till 15th july,2013 bank rate was 10.25%,but it has been
reduced to 9.5% w.e.f 20th sept,2013.

5. (2)Open Market Operation: An Open Market Operation is an
instrument of monetary policy which involve buying and selling of
government securities from or to the public and bank. This mechanism
influences the reserve position of the banks, yeild on government
securities and cost of bank credit.
The RBI sells government securities to contract the flow
of credit and buys government securities to increase credit flow.
With a view to curbing the prevailing and evolving market conditions,
last month RBI had announced conducting of open market operations
by purchasing Government of India securities worth Rs.8,000 crore to
eject liquidity in the economy.

6. (3) Statutory Liquidity Ratio: Every financial institution has to maintain
a certain quantity of liquid assets with themselves at any point of time
of their total time and demand liability. These assets can be cash ,
precious metals, approved securities like bonds etc. The ratio of the
liquid assets to time and demand liabilities is termed as Statutory
Liquidity ratio. Previously SLR was 24% but recently it has been
reduced to 23%.
(4)Cash reserve ratio: Cash reserve ratio is a certain percentage of
bank deposit which banks are required to keep with RBI in the form of
reserve or balances. Higher the CRR with the RBI lower will be the
liquidity in the system and vice-versa. RBI is empowered to vary CRR
between 15% and 3%. As of january 2013,the CRR is 4%.

7. (5)Multiple Rates of interest: In October 1960, RBI started ‘multiple
rate of interest’ programme. Under this programme, RBI fixes credit
quota for various commercial banks. If commercial banks borrow funds
from RBI within their quota, they are charged interest at repo rate, but
if commercial bank borrow more then their fixed quota, they are
charged higher interest rates i.e. more than bank rate. RBI by changing
quotas of commercial banks and by changing interest rate for lending
beyond the quotas limit, can expand or contract credit. If RBI reduces
quotas or increases interest rates it will contract credit and vice versa.
(6)Repo Rate and Reverse Repo Rate: ‘Repo’ and ‘Reverse repo’ are
the main monetary policy rate. Repo rate means the interest rate at
which commercial banks can borrow funds from RBI. Reverse repo rate
means the interest rate given by RBI on deposits made by commercial
banks with it. Increase in repo rate will contract credit as now
commercial banks can get funds from RBI at higher interest. Similarly
,increase in reverse repr rate will also contract credit as commercial
banks are more inclined to deposit their funds with RBI earn high
interest.

8. Recently, new RBI Governor, Raghuram Rajan has increased repo rate
and reverse repo rate to 7.5% and 6.5% respectively with the motive to
fight back the currency depreciation and secondly to encourage saving
as due to high inflation ,desired level of financial sector saving has not
been achieved.

9. (B)Qualitative Credit Control
This refers to the control of specific credit meant for certain specific
objectives. It refers to regulating and controlling the credit to a
specific sector/commodity/area.
Following instruments of selective control are generally adapted:-
(1) Marginal Requirement: Margin is the difference between loan
value and market value of security. It is fixed by the RBI. For
different types of loan, margin requirement is different. If margin
percentage is more, then less loan will be given for a certain
value of security and vice-versa. For example:-A person
mortgages his property worth Rs.1,00,000 against a loan. If
suppose marginal requirement is 20%, then bank will only give a
loan of Rs.80,000.

10. (2) Moral Suasion
This method is also known as “Moral Persuasion” as the method
that the Reserve Bank of India, being the apex bank uses here, is that
of persuading the commercial banks to follow its directions/orders on
the flow of credit. RBI puts a pressure on the commercial banks to put
a ceiling on credit flow during inflation and be liberal in lending during
deflation.
(3) Rationing of credit
Under this method there is a maximum limit to loans and
advances that can be made, which the commercial banks cannot
exceed. RBI fixes ceiling for specific categories. Such rationing is used
for situations when credit flow is to be checked, particularly for
speculative activities.

11. (4) Publicity
RBI uses media for publicity of its views on the current market
condition and its directions that will be required to be implemented by
the commercial banks to control the unrest. Though this method is not
very successful in developing nation due to high illiteracy rate that
make it difficult for people to understand such policies and its
implications.
(5) Direct Action
Under the banking regulation Act, the central bank has the
authority to take strict action against any of the commercial banks that
refuses to obey the direction given by RBI. There can be a restriction
on advancing of loans imposed by RBI on such banks.