Q. Which of the following are the sources of income for the Reserve Bank of India?
I. Buying and selling Government bonds
II. Buying and selling foreign currency
III. Pension fund management
IV. Lending to private companies
V. Printing and distributing currency notes
Select the correct answer using the code given below.
Exp) Option d is the correct answer.
The Reserve Bank of India was established under the RBI Act, 1934, to regulate the issuance of banknotes and maintain monetary stability in India. While its primary goal is public welfare, certain market operations undertaken to ensure financial stability also generate income. This surplus is transferred to the Government of India as per the Bimal Jalan Committee’s (2019) recommendations on the economic capital framework.
Option I is correct: Open market operations, through which the RBI buys or sells government bonds to regulate the money supply, serve as a key source of income. In addition to earning interest on these bonds, the RBI can also gain from favorable movements in bond prices.
Option II is correct: As per Foreign Exchange Management Act, 1999 (FEMA), the RBI is responsible for managing the country’s foreign exchange reserves and ensuring external stability. The RBI’s activities in the foreign exchange market also contribute to its profits. For example, it may purchase U.S. dollars at lower rates and sell them at higher rates later.
Option III is incorrect: The Reserve Bank of India (RBI) does not manage pension funds. Pension fund management in India is regulated and overseen by the Pension Fund Regulatory and Development Authority (PFRDA),
Option IV is incorrect: The RBI does not directly lend to private companies in India. It lends money mainly to commercial banks and financial institutions who in turn lend to private companies and individuals.
Option V is correct: The RBI Act, 1934 designates the Reserve Bank of India as the sole authority to issue banknotes in India. While the RBI bears the printing costs, it earns seigniorage—the profit arising from the difference between the face value of the currency and its production cost which also acts as one of the sources of income of RBI.
Source: https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1412
https://www.thehindu.com/business/Economy/where-do-the-rbis-earnings-come-from/article29310531.ece
https://www.rbi.org.in/commonman/English/scripts/Notification.aspx?Id=905
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