Direct and indirect.

"The Reserve Bank of India's (RBI) primary job is to protect the value of the rupee I.e. domestic price stability," wrote Ajit Ranade. Since 2016, the RBI has been asked by the government to maintain consumer price index (CPI) inflation at 4%, with a margin of 2% on either side. ET. However, since 2020, average annual CPI inflation has varied between 5.1% and 6.7%, reaching a low of 4.9% in 2024. RI. This failure to control inflation is because the RBI "also serves as the government's merchant banker, conducting bond sales to raise fiscal resources. This role is often at odds with its role as a money tightener, since the former calls for lowering the cost of borrowing and the latter requires the opposite." The RBI sold foreign exchange worth $250 billion to support the rupee. India imported 232.5 million metric tonnes of crude oil at a cost of $132.4 billion in 2023-24. eximpedia. A stronger rupee would keep the price of oil down and this allowed the government to earn over Rs 32 trillion in taxes on oil from 2014-15 to 2024-25 (PPAC). The RBI profited from the sale of $250 billion because the fall of the rupee against the dollar (bankbazaar.com) meant the selling price was much higher than the buying price. It seems that the RBI intends to pay Rs 2.50 to Rs 3 trillion to the government as annual dividend. MC. Selling dollars creates a shortage of rupees in the market so the RBI is to buy government bonds worth Rs 1.25 trillion. This will increase liquidity and bring down borrowing costs. Lower borrowing costs help the government by bringing down the interest it incurs on its debt. From April 2024 to February 2025, the fiscal deficit, or government borrowing, has been 85.8% of the annual revised target at Rs 13.47 trillion. The total fiscal deficit is expected to be Rs 15.7 trillion for the financial year 2024-25, in line with expectations. TOI. By transferring enormous dividends and buying government bonds the RBI is directly and indirectly monetizing government debt (wikipedia). "Debt monetization is commonly unsuccessful in countries with a history of government intervention in central bank decision-making, such as emerging markets, where the church-and-state separation between central banks and governments is not as strictly enforced as in advanced economies." Investopedia. There is no separation in India because, "Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the government of India. rbi.org.in. The theory of the 'Impossible Trinity' says that a central bank can control any two, but not all three, of 1. a fixed foreign exchange rate, 2. free capital movement and 3. an independent monetary policy. wikipedia. The RBI cut its policy rate to 6% in April. TOI. "Thus, its actions on the forex front had the opposite effect of what it was trying to do with monetary policy." "The bottom-line is this: try as we might, the Impossible Trinity will always get the better of us." Mint. Will there be a day of reckoning? Enjoy the party while it lasts.