Explain the role of money market in India.

Answer: The money market is a market for short-term funds (usually up to one year), dealing in instruments such as call money, treasury bills, commercial bills, commercial papers and certificates of deposit. It plays the following role in India:

1. Financing trade and commerce: it provides short-term funds to traders through discounting of bills of exchange, which helps internal and foreign trade.
2. Financing industry: industries get working capital (for raw materials, wages, etc.) through loans, overdrafts and cash credit.
3. Profitable investment of surplus funds: banks and financial institutions can invest their short-term surplus funds safely and profitably in money market instruments.
4. Helps the central bank (RBI): it provides a channel through which the RBI implements monetary policy, e.g. by open market operations, repo and reverse repo rates, to control credit and money supply.
5. Helps the government: the government raises short-term funds by issuing treasury bills at low interest to meet temporary deficits.
6. Ensures liquidity: commercial banks can meet temporary shortages of cash by borrowing in the call money market instead of keeping large idle cash reserves.
7. Promotes economic growth: by mobilising savings and supplying them to agriculture, industry and trade, it helps in capital formation and growth.
8. Saves time and cost: it allows quick transfer of funds from surplus to deficit units at low cost.