onetary policy is, by common agreement, the defining function of a central bank. Uniquely for a central bank, the Reserve Bank of India undertook a variety of developmental initiatives in independent India, though monetary policy remained its central preoccupation. The principal structural features of the Bank's economic and financial environment and the resulting diversity in the nature of its responsibilities qs a central bank have already been discussed in the introductory chapter. Monetary policy, which is usually understood to represent policies, objectives, and instruments directed towards regulating money supply and the cost and availability of credit in the economy, could not remain unaffected by this inherited context. Therefore the Reserve Bank of India was prone to take a rather wider view of its monetary policy than more traditional central banks, including within its ambit the institutional responsibility for deepening the financial sector of the economy. Thanks to the Bank's own initiatives and the stimulus of the ongoing process of planned development, the institutional context of monetary policy underwent substantial change during our period. At the same time, tensions between the Bank's concern to regulate credit and its wider responsibility to spread and deepen the domestic financial system were often not far in the background. Some of these tensions might be regarded in the light of experience as transient or short-term while others persist to this day, but their impact on the Bank's decision-malung at the time can hardly be overlooked.
As important, the financing of planned development in a poor economy was a source both of challenge and of constraints for the Bank in its role as the monetary policy authority. While the short-term management of seasonal,
MONETARY AND CREDlT POLICY
inflationary, and balance of payments pressures remained an important focus of monetary policy, the overall...