Context

The Reserve Bank of India (RBI) celebrates its 90th anniversary, prompting reflections on its evolution and challenges ahead.

1: Dimension- Historical Evolution and Challenges:

• Significant Legacy: Established in 1935, the RBI is among the oldest central banks in developing countries, witnessing India's transition from pre- to post-independence eras and navigating various economic shifts.
• Management of Transitions: Over its existence, the RBI has adeptly managed transitions from planned economies to market-oriented structures and now towards an increasingly digital economy, learning from past experiences and adapting to new challenges.
• Tackling Economic Disruptions: Throughout its history, the RBI has confronted significant economic disruptions, including the global financial crisis, demonetization, and the COVID-19 pandemic, while also addressing issues like the banking sector's bad loan crisis.

2: Dimension- Recent Achievements and Future Challenges:

• Resolution of Bad Loans: With proactive measures like the Insolvency and Bankruptcy Code (IBC) framework and capital infusion, the RBI has successfully tackled the problem of bad loans, reducing the non-performing asset (NPA) ratio significantly and fostering healthy credit growth.
• Adoption of Inflation Targeting: The formal adoption of inflation targeting by the RBI has helped in keeping inflation in check and anchoring inflation expectations, despite occasional disruptions due to external factors like the pandemic.
• Technological Innovations: Embracing technological advancements, the RBI has revolutionized the payments ecosystem through initiatives like the Unified Payments Interface (UPI), laying the groundwork for further digital transformation and innovation.

Mains Question:

Discuss the evolution and challenges faced by the Reserve Bank of India (RBI) over its 90-year history. Analyze its role in navigating economic transitions, addressing disruptions, and adopting technological innovations, while outlining future challenges and prospects for India's central banking system.