An Evaluation of Monetary Policy in India: A Sustainable Development Perspective

This chapter attempts to evaluate the performance of monetary policy in terms of its effectiveness in influencing the rate of economic growth and controlling inflation. The importance of these two policy objectives comes to the fore, especially when viewed through the lens of the Sustainable Development Goals (SDGs) of the United Nations. Growth is critical for combating poverty and undertaking redistributive measures to mitigate inequality within nations (SDGs 1 and 10), whereas managing inflation, especially food inflation, lies at the core of strategies designed to end hunger and achieve food and nutrition security (SDG 2). The performance evaluation undertaken in the paper is based on a review of relevant literature in the Indian context, focusing especially on the post-liberalization period. Given the centrality of monetary policy measures in the Indian government’s response to the economic pandemic wrought by COVID-19, perhaps such an appraisal is needed now, more than ever before. To begin with, a brief overview of the conduct of monetary policy in India provides the necessary background for the remaining analysis. The effectiveness of monetary transmission in affecting aggregate demand and output in the Indian context, especially in recent times, is examined thereafter. The phenomenon of inflation, especially food price inflation and the efficacy of monetary measures in controlling it, is discussed next. Findings from the literature are then used to assess recent liquidity measures of the Indian government for economic revival in pandemic times and conclude.