Context:
Prime Minister Narendra Modi addressed a ceremony to mark 90 years of the Reserve Bank of India in Mumbai.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- News Summary: Prime Minister Narendra Modi Addresses RBI@90 Ceremony
- About Reserve Bank of India (RBI)
- Journey of the Reserve Bank of India (RBI)
News Summary: Prime Minister Narendra Modi Addresses RBI@90 Ceremony
- Prime Minister Narendra Modi spoke at the opening ceremony of RBI@90, commemorating 90 years of the Reserve Bank of India in Mumbai.
- PM Modi acknowledged RBI’s significant milestone, highlighting its presence during both pre- and post-independence periods and its global reputation for professionalism and commitment.
- He emphasized the upcoming decade’s importance for India’s rapid growth, focusing on trust, stability, and achieving a ‘Viksit Bharat’ (Developed India).
- Despite financial discussions often being laden with complex jargon, PM Modi stressed that RBI’s actions directly impact the lives of everyday citizens.
- Clarity on targets for the next decade was underscored by the Prime Minister.
- PM Modi highlighted the shift towards a cashless economy and the promotion of digital transactions, emphasizing the need for financial inclusion and empowerment.
- With India being the world’s youngest nation, the Prime Minister noted RBI’s crucial role in realizing youth aspirations.
- Lastly, PM Modi stressed the necessity of a robust banking industry to support the nation’s projects with adequate funding.
About Reserve Bank of India (RBI)
Overview:
- The Reserve Bank of India (RBI) serves as India’s central bank and regulatory authority, overseeing the Indian banking system.
- Established in 1934 under the Reserve Bank of India Act, it was formed based on the recommendations of the 1926 Hilton Young Commission.
- Initially privately owned, it was nationalized in 1949 and is now fully owned by the Government of India’s Ministry of Finance.
Composition:
- The central board of directors guides the RBI, comprising:
- One Governor
- Four Deputy Governors
- Two Finance Ministry Representatives (usually Economic Affairs and Financial Services Secretaries)
- Ten government-nominated Directors
- Four Directors from local boards representing Mumbai, Kolkata, Chennai, and Delhi.
- Each local board consists of five members, advocating regional and co-operative/indigenous bank interests.
- Sir Osborne Arkell Smith was the inaugural Governor, with Sir C D Deshmukh being the first Indian to hold the position.
Primary Functions of the RBI:
Monetary Authority:
- Develops, implements, and monitors monetary policy with the aim of maintaining price stability and supporting growth.
Regulator and Supervisor of the Financial System:
- Sets the framework for banking operations, ensuring public confidence, protecting depositors’ interests, and providing cost-effective banking services.
Manager of Foreign Exchange:
- Administers the Foreign Exchange Management Act, 1999, facilitating external trade, payments, and orderly foreign exchange market development in India.
Issuer of Currency:
- Manages currency issuance, exchange, and destruction, as well as circulating coins minted by the Government of India, ensuring adequate and quality supply to the public.
Developmental Role:
- Undertakes promotional functions to support national objectives.
Regulator and Supervisor of Payment and Settlement Systems:
- Introduces and enhances safe and efficient payment systems, aiming to maintain public confidence.
Related Functions:
- Acts as a banker to the Government, offering merchant banking services to both central and state governments, and manages banking accounts for all scheduled banks.
Journey of the Reserve Bank of India (RBI)
Establishment (1934):
- The Reserve Bank of India (RBI) was established on April 1, 1935, under the Reserve Bank of India Act, 1934. It began its operations as India’s central banking institution in Kolkata.
Initial Years:
- Sir Osborne Smith, an Australian banker, became the first Governor of RBI.
- The RBI started with the dual role of managing the currency of India and serving as a banker to the government.
Post-Independence Period (1947):
- India gained independence in 1947, and the RBI played a pivotal role in formulating monetary and credit policies to stabilize the country’s economy.
Nationalization (1949):
- In 1949, the RBI was nationalized, making it fully owned by the Government of India. This move aimed to ensure greater financial stability and control over monetary policy.
Monetary Policy and Regulation:
- Over the decades, the RBI has evolved as the primary monetary authority, formulating and implementing monetary policies to control inflation, support economic growth, and maintain financial stability.
- The RBI has also taken on a regulatory role, supervising and regulating banks and other financial institutions to ensure the health and stability of the financial system.
Financial Sector Reforms (1990s):
- The 1990s witnessed significant financial sector reforms in India, and the RBI played a crucial role in liberalizing and modernizing the banking and financial sector to integrate with global markets.
Adoption of Inflation Targeting (2010s):
- In the 2010s, the RBI adopted inflation targeting as a primary objective of monetary policy, aiming to maintain consumer price inflation within a specified range to support sustainable economic growth.
Digital Transformation and Innovation:
- With the advent of technology and digital banking, the RBI has been proactive in promoting digital payments, enhancing financial inclusion, and fostering innovation in the financial sector while ensuring cybersecurity and consumer protection.
Current Role and Challenges:
- Today, the RBI continues to play a pivotal role in steering India’s monetary and financial system, addressing challenges posed by global economic uncertainties, financial market volatilities, and domestic macroeconomic imbalances.
-Source: The Economic Times
