Many people believe that if a government simply distributes a large amount of money—say ₹10 lakh to every citizen—poverty can be instantly eliminated and the economy will rapidly improve. At first glance, this idea seems attractive because money appears to solve most financial problems. But when we look at how an economy actually works, we realize that such a move would not eliminate poverty permanently. In fact, it could seriously damage the economic system.
To understand why this is not a practical solution, we must understand the basic principle of supply and demand. Every market in the world works on this fundamental rule. If the supply of money increases sharply while the supply of goods and services remains the same, prices will rise. This means inflation will increase. As prices rise, the purchasing power of money falls. So even if everyone receives ₹10 lakh today, after some time, the value of that money will reduce drastically because the prices of food, property, fuel, education, healthcare, and daily necessities will rise abnormally.
This means people will again struggle with higher costs of living. In simple words, more money without increased production leads to inflation, not prosperity. Poverty is not eliminated by printing money; it is reduced through employment generation, productivity, economic growth, and stable financial policies. This is exactly where the role of the Reserve Bank of India (RBI) becomes extremely important.
How Does the Indian Economy Really Work?
India’s economy is driven by a complex balance of production, consumption, investment, savings, and government spending. When people earn income through jobs or businesses, they spend part of it and save part of it. Banks use these savings to give loans to industries, entrepreneurs, and individuals. These loans help in building factories, infrastructure, homes, and businesses. This cycle creates jobs, increases production, and strengthens the economy.
If the government suddenly injects massive cash into the system without matching growth in production, it disrupts this balance. Demand rises instantly because people have more money to spend, but supply cannot increase at the same pace. This mismatch causes price explosions, which we call inflation. Inflation hurts the poor and middle class the most because their income does not rise as fast as prices.
Therefore, instead of giving free money, governments focus on controlling inflation, managing interest rates, strengthening banks, and supporting economic growth. This responsibility in India mainly lies with one powerful institution—the Reserve Bank of India (RBI).
RBI Policy 2025: Backbone of India’s Financial System
The Reserve Bank of India plays a vital role in controlling the Indian economy. It is the central bank of the country and is responsible for managing inflation, money supply, interest rates, and overall financial stability. Every two months, the RBI announces its Monetary Policy, and this single announcement directly affects the lives of millions of Indians.
This includes:
Your home loan EMI, car or personal loan, fixed deposit returns, savings account interest, and the level of inflation in the market.
All of these are directly or indirectly influenced by RBI policy decisions. This is why RBI policy is not just important for banks and financial institutions but is equally important for common people.
What is RBI Policy?
The RBI monetary policy is the key tool through which the RBI controls:
Inflation, money supply, and interest rates in the economy.
The primary purpose of this policy is to ensure that:
Inflation is under control, smooth economic growth takes place, and the banking system remains stable and safe.
This policy is decided by a special body known as the Monetary Policy Committee (MPC). The MPC consists of six members: three members from RBI and three external experts appointed by the government.
These six members study economic data such as inflation rates, growth figures, global economic conditions, and liquidity in the market. Based on this analysis, they decide whether to increase, decrease, or keep interest rates unchanged. Their decisions directly influence the financial life of every Indian citizen.
What is Repo Rate?
The Repo Rate is one of the most powerful tools used by the RBI. It is the rate of interest at which the RBI lends money to commercial banks. When banks need short-term funds, they borrow from the RBI at this rate.
Higher repo rates make it costly for banks to borrow.
When the repo rate comes down, borrowing becomes cheaper.
Banks transfer this cost to customers. This means your home loan, car loan, education loan, and personal loan interest rates depend heavily on the repo rate.
How Repo Rate Affects You Directly
When the RBI increases the repo rate:
Banks raise loan interest rates, and EMIs become costlier.
Borrowing reduces, spending slows down, and inflation comes under control.
If the RBI reduces the repo rate:
Loans become cheaper.
EMIs drop.
People borrow more.
Spending and investment increase.
Economic growth accelerates.
Hence, the repo rate behaves as both a brake and an accelerator for the Indian economy.
Impact of RBI Policy on Common People
RBI policy does not remain limited to financial news channels or banking meetings. Its real impact is felt in the day-to-day life of every common citizen.
1. Impact on EMIs (Loans)
If the repo rate increases, banks raise interest rates on:
Home loans, car loans, personal loans, and business loans.
This leads to an increase in monthly EMIs. A small increase in the interest rate can raise EMIs by thousands of rupees every month. This directly affects household budgets.
On the other hand, when the repo rate decreases, EMIs become cheaper. People feel financially comfortable, spending increases, and economic activity improves. Therefore, RBI policy plays a direct role in deciding how heavy or light your monthly financial burden will be.
2. Effect on Savings and Deposits
RBI policy also affects how much return you earn on your savings. Banks decide the interest on:
Fixed Deposits (FD), Recurring Deposits (RD), and Savings Accounts,
based on the repo rate.
When the repo rate is high, banks offer higher interest on deposits. This benefits senior citizens, retirees, and middle-class families who depend on interest income.
When the repo rate is low, deposit interest rates fall. This reduces income from savings but supports borrowers and economic growth.
Accordingly, the policy of RBI balances the interests of both borrowers and savers.
3. Inflation Control
Inflation means a continuous rise in the prices of essential goods and services. RBI follows a legally defined inflation target of 4% with a tolerance range of 2% to 6% (4 ± 2).
If inflation goes beyond this range:
Purchasing power reduces, the cost of living increases, and poor and middle-class families suffer the most.
To control inflation, RBI increases repo rates to reduce unnecessary spending and borrowing. When demand falls, prices stabilize. In this way, RBI protects the common man from uncontrolled price rise.
Main Aims of RBI Policy 2025
1. Inflation Control
The first and most important objective of RBI Policy 2025 is to keep inflation under control. Without inflation control:
Savings lose value, investments become risky, and economic planning becomes difficult.
By managing interest rates, the RBI ensures that inflation remains within the target range.
2. Supporting Economic Growth
RBI also aims to support economic growth by ensuring sufficient credit availability to industries, MSMEs, startups, and individuals. Affordable loans result in:
More investments, more jobs, higher production, and stronger GDP growth.
3. Stabilizing the Banking System
A stable banking system is the foundation of a strong economy. RBI ensures that:
Banks remain financially healthy, bad loans (NPAs) are controlled, and adequate capital is maintained.
This protects depositors’ money and prevents financial crises.
4. Strengthening the Digital Payment System
Another major focus of RBI Policy 2025 is to strengthen India’s digital payment system. With the rapid growth of:
UPI, digital wallets, online banking, and QR-code transactions,
RBI ensures:
Security of digital transactions, prevention of cyber fraud, and smooth and fast settlement systems.
This strengthens transparency and boosts the formal economy.
5. Strengthening the Overall Financial System
RBI policy also works towards:
Financial inclusion, expanding banking services to rural areas, and making credit accessible to small businesses and farmers.
This ensures that economic growth benefits all sections of society.
Conclusion
We can clearly conclude that RBI policy is truly the backbone of India’s economy. It not only guides banks and financial institutions but also directly impacts the daily financial life of ordinary people. From EMIs and savings to inflation and digital payments, everything is deeply influenced by RBI decisions.
The idea that poverty can be eliminated simply by distributing ₹10 lakh to every citizen is economically unrealistic. Without production, employment, and financial discipline, such free distribution would only increase inflation and instability. Real economic strength comes from sound monetary policy, controlled inflation, strong banks, and sustainable growth—all of which are ensured by the Reserve Bank of India.
Thus, RBI does not just regulate money; it protects the economic stability of the nation and safeguards the financial future of every Indian citizen.