RAS question
Market Stabilisation Scheme (MSS) was introduced in:
Correct answer: (A) 2004.
The Market Stabilisation Scheme was introduced in April 2004 as an additional RBI liquidity-management instrument.
Explanation
The Market Stabilisation Scheme belongs to the RBI's liquidity-management toolkit. It was introduced in 2004 to absorb surplus liquidity of a more enduring nature arising from large capital inflows. The Reserve Bank of India Bulletin gives the date more precisely: the MSS was introduced in April 2004 as an additional instrument, with the purpose of relieving the Liquidity Adjustment Facility from the burden of sterilisation operations. Under MSS, the RBI issues treasury bills and dated securities, but the cost is borne by the government. That makes 2004 the only correct year: the scheme was not a response to the 2008 crisis, nor was it in place in 2002 or first introduced in 2006.
Why the other options are wrong
- (B) 2008 is too late because MSS had already been introduced in April 2004, before the 2008 crisis.
- (C) 2002 is too early because the scheme came after that year, with the Reserve Bank of India Bulletin placing its introduction in April 2004.
- (D) 2006 is too late because the Reserve Bank of India Bulletin identifies MSS as an instrument introduced in April 2004.
Concept
This tests monetary policy operations, especially how the RBI manages durable surplus liquidity through instruments such as LAF, MSS, treasury bills and dated securities. It recurs in RAS because liquidity management links external capital flows, government securities and the RBI's operating framework.