UPSC Prelims 2001 Q54: Indian Economy – Banking & Financial Sector
Consider the following statements regarding Reserve Bank of India:
I. It is a banker to the Central Government.
II. It formulates and administers monetary policy.
III. It acts as an agent of the Government in respect of India’s membership of IMF.
IV. It handles the borrowing programme of Government of India.
Which of these statements are correct?
- (a) I and II
- (b) II, III and IV
- (c) I, II, III and IV
- (d) III and IV
Answer: (c) I, II, III and IV
Explanation
Statements regarding the Reserve Bank of India
| Statement | Verdict |
|---|---|
| I. Banker to the Central Government | Correct — sections 20-21 of the RBI Act, 1934 |
| II. Formulates and administers monetary policy | Correct — now through the Monetary Policy Committee (2016) |
| III. Agent of the Government for India's IMF membership | Correct — the RBI acts for the Government in IMF dealings |
| IV. Handles the Government of India's borrowing programme | Correct — RBI manages public debt and issues government securities |
All four statements are correct. The RBI is banker to the Government, sets monetary policy, acts as the Government's agent for the IMF, and runs the market borrowing programme of the Centre.
Answer: (c) I, II, III and IV.
Why each option is right or wrong
- (a) Incorrect. Statements III and IV are also correct.
- (b) Incorrect. Statement I, banker to the Government, is also correct.
- (c) CORRECT. All four statements describe RBI functions.
- (d) Incorrect. Statements I and II are also correct.
Key point
RBI: set up 1 April 1935, nationalised 1949; HQ Mumbai; Governor appointed by the Centre.
Remember
RBI: banker and debt manager to Government, monetary authority, IMF agent.
Common mistakes
- Thinking the Finance Ministry alone deals with the IMF.
- Not knowing the RBI manages government borrowing.
- Leaving out the banker-to-Government role.
Exam tip
List the RBI's classic functions: note issue, banker to Government, banker's bank, monetary policy, debt manager.
Sources
- Reserve Bank of India Act, 1934 — Sections 17, 20, 21
- Reserve Bank of India — Functions and Working (RBI publication)