RBI


📝 1. UPSC Prelims-Level Questions (MCQs)

Q1. Consider the following functions of the RBI:

  1. Issuing currency

  2. Acting as banker to the government

  3. Regulating foreign exchange

  4. Collecting direct taxes

Which of the above are functions of the RBI?
A. 1, 2 and 3 only
B. 1 and 3 only
C. 2 and 4 only
D. 1, 2, 3 and 4

✅ Answer: A

Collecting direct taxes is the responsibility of the CBDT, not RBI.

Q2. Which of the following instruments are used by the RBI for monetary policy?

  1. Repo Rate

  2. CRR

  3. Open Market Operations

  4. GST

A. 1, 2 and 3 only
B. 2 and 4 only
C. 1 and 4 only
D. 1, 2, 3 and 4

✅ Answer: A

GST is a tax and not a monetary policy instrument.

Q3. Who appoints the Governor of the RBI?

A. RBI Board
B. Finance Commission
C. Prime Minister
D. Government of India

✅ Answer: D

The Government of India, through the Appointments Committee of the Cabinet (ACC), appoints the RBI Governor.

✍️ 2. UPSC Mains-Level Questions (GS Paper III)

Q1. Discuss the role of the Reserve Bank of India (RBI) in the Indian economy.

Answer:
RBI plays a crucial role in managing India's monetary and financial systems. Its key roles include:

  • Monetary policy formulation (inflation targeting via repo rate, etc.)

  • Currency issuance and management

  • Regulating banks and NBFCs under the Banking Regulation Act

  • Maintaining financial stability

  • Managing foreign exchange reserves and exchange rate

  • Acts as banker to the Government of India

  • Promotes digital payment systems and financial inclusion

Q2. What is the Monetary Policy Committee (MPC)? Explain its composition and significance.

Answer:
The Monetary Policy Committee (MPC) is a 6-member committee of the RBI responsible for setting the policy repo rate to achieve inflation targets.

Composition:

  • 3 members from RBI (Governor as Chairperson, Deputy Governor, one RBI official)

  • 3 members nominated by Government of India

Significance:

  • Brings transparency and accountability in monetary policy

  • Targets inflation (4% ± 2%) as per the Flexible Inflation Targeting (FIT) framework

  • Decisions are based on majority vote (Governor has casting vote)

Q3. Examine the tools used by the RBI to control inflation.

Answer:
Key tools include:

🔹 Quantitative Tools (General Controls):

  • Repo rate (short-term lending rate)

  • Reverse repo rate (short-term deposit rate)

  • CRR (Cash Reserve Ratio)

  • SLR (Statutory Liquidity Ratio)

  • Open Market Operations (OMO)

🔹 Qualitative Tools (Selective Controls):

  • Credit rationing

  • Moral suasion

  • Marginal requirements

These tools help in controlling money supply, managing inflation, and stabilizing the economy.

Q4. What are the sources of income for the RBI?

Answer:
See detailed answer in the previous message, but in short:

  • Interest from foreign and domestic assets

  • Profit from G-Sec sales

  • Currency revaluation gains

  • Commission and supervisory fees

  • Seigniorage (profit from note printing)

  • Dividends from subsidiaries

  • Penalties from regulated entities

🗣️ 3. UPSC Interview-Level Questions with Model Answers

Q1. Can the RBI print unlimited currency to solve economic problems like poverty or recession?

Answer:
No. Printing excessive money causes inflation and reduces the purchasing power of the currency. The RBI must maintain price stability while supporting growth. Uncontrolled printing violates monetary discipline and can lead to hyperinflation, as seen in Zimbabwe or Venezuela.

Q2. What is RBI’s role in promoting digital payments?

Answer:
RBI regulates and supports the digital payment ecosystem through:

  • Regulatory oversight of UPI, IMPS, NEFT, RTGS

  • Licensing Payment Banks, PPIs

  • Promoting Financial Literacy and Digital Payment Awareness Weeks

  • Initiatives like Payments Infrastructure Development Fund (PIDF)

Q3. What is the difference between RBI and SEBI?

Answer:

Parameter RBI SEBI
Established 1935 (RBI Act) 1992 (SEBI Act)
Focus Banking and Monetary Stability Capital markets (shares, bonds)
Regulates Banks, NBFCs, payments Stock markets, mutual funds, brokers
Appoints MPC, monetary policy, issue of currency Protects investors, market transparency

🧠 Revision Key Points

  • RBI established in 1935, nationalized in 1949

  • HQ: Mumbai

  • Functions under RBI Act, 1934 and Banking Regulation Act, 1949

  • Governor: (e.g., as of 2024: Shaktikanta Das)

  • Inflation target: 4% ± 2% under Monetary Policy Framework

  • RBI is a full-service central bank: monetary authority, currency issuer, regulator, and banker to government


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