India, May 8 -- The history of monetary policymaking in India dates back to the pre-independence era, but it gained significant momentum and structure post-independence. The Reserve Bank of India (RBI) was established in 1935, as a private shareholders' bank and was nationalized in 1949, giving the Government greater control over monetary policy and credit system. With the establishment of the Planning Commission in 1951, emphasis was laid on the direct and active role of Central banking.

A breakthrough year was 1969 when 14 private sector banks were nationalized. It led to transforming monetary policy into 'credit planning' and taking up a 'command approach' (Khatkhate, 1990). Soon the economy suffered due to the two oil price shocks (1...