Controlled Expansion v/s Tight Monetary Policy
We all know that India entered into the era of economic planning in 1951. The monetary and Fiscal Policies had to be adjusted to the requirements of the planned development in the country and accordingly, the economic policy of the Reserve Bank was emphasized on the following two major objectives.
- To speed up the economic development of the nation and raise the national income and standard of living of the people.
- Control and reduce the “Inflationary” pressure on the economy.
The requirement was an adequate financing of the economic growth programmes, and at the same time containing the inflationary pressure and maintenance of price stability. Thus this was a period of “Controlled Expansion“.
Since 1972, there is a rapid increase in the money supply with the public and banking system. The expansion of the Bank credit to trade and industry also increased. The early 1970s marked an era of serious inflationary situations. The frequent fluctuations in the agricultural productions, defective government polices and global inflationary pressures arising out of the oil prices etc. led the RBI to abandon the “controlled expansion” and adopt a policy that is most suitable for retraining the credits. This is called “tight monetary” policy and RBI has been successful with varying degree of success.