Question 11 from UPSC CSE 2021 - Economics

Question

Consider the following statements:
1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest.
3. The Governor of the RBI draws his power from the RBI Act.
Which of the above statements are correct?

IASCODEX · Accepted Answer

Correct Option: C. 1 and 3 only

Strategy: Identify the legal instrument governing the RBI, whether a statute or the Constitution. Recognize that the Governor's appointment by the Central Government is a factual detail from the RBI Act. Treat the term 'Constitution' in statement 2 as a distractor, since the RBI is a statutory body, not a constitutional one. Confirm that statement 3 correctly links the RBI's powers to the RBI Act. Eliminate any options containing statement 2 and select the option with statements 1 and 3.

Key Info: **Reserve Bank of India (RBI)**
- The RBI is India's central bank and a statutory body set up under the Reserve Bank of India Act, 1934.
- Section 8(1)(a) of the RBI Act empowers the Central Government to appoint the Governor and up to four Deputy Governors.
- The Governor's powers and functions stem entirely from the RBI Act, which provides for general superintendence, direction, and control of the bank's affairs.

**Directions by Central Government**
- Section 7 of the RBI Act 1934 authorizes the Central Government to issue directions to the RBI, in consultation with the Governor, when it is deemed necessary in the public interest.
- These directions, if issued, are legally binding under the statutory framework of the RBI Act, not through any provisions of the Indian Constitution.

**RBI and the Constitution**
- RBI is neither a constitutional body nor does the Constitution prescribe its functioning, composition, or powers.
- No article in the Constitution mentions or governs the RBI.

**Central Bank Examples and Governance**
- Many countries' central banks (e.g., Bank of England, US Federal Reserve) are also established through specific legislation, not their constitutions.
- RBI has played a key role in monetary policy, banking regulation, issuance of currency, and management of foreign exchange under its Act since 1935.

IASCODEX · Answer

Option A: 1 and 2 only

IASCODEX · Answer

Option B: 2 and 3 only

IASCODEX · Answer

Option D: 1, 2, and 3