UPSC Prelims 2015 – Question 86

86.With reference to Indian economy, consider the
following:

1. Bank rate
2. Open market operations
3. Public debt
4. Public revenue

1. Which of the above is/are component/components of Monetary Policy?
2. a) 1 only
3. b) 2, 3 and 4
4. c) 1 and 2
5. d) 1, 3 and 4

The correct answer is 1 and 2. 

• The monetary policy tools 
  • It is implemented by the RBI through open market operations, bank rate, CRR, SLR, repo rate, and reverse repo rate. 

• The bank rate 
  • It is the rate of interest at which RBI charges while lending loans to a commercial bank.  

• The Open market operations 
  • It is conducted by the RBI by the way of sale and purchase of Government Securities (G-Secs) to adjust liquidity in the market. 

• Public debt 
  • It is the total amount that is borrowed by the government to meet its development budget. 
  • It includes the total liabilities of the Union government that have to be paid from the Consolidated Fund of India. 
  • The income of the government through taxes, fees, sale of public goods and services, fines, donations, etc is known as public revenue. 
  • Therefore, Public debt is not part of Monetary Policy and OMOs together with CRR, SLR, Repo, and Reverse Repo by RBI are certainly a part of their monetary policy. Hence, Option 3 is correct. 

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