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The Increasing Importance of the Reserve Bank of India

IndianMoney.com Research Team | Posted On Saturday, February 01,2020, 05:46 PM

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The Increasing Importance of the Reserve Bank of India

 

 

The Reserve Bank of India is the regulatory body and the central bank of the country. It regulates cash flow in the economy and facilitates trade and industries within and outside the country.

The RBI was established in the year 1935 on 1st of April and was nationalised in 1949. The RBI is governed as per the rules and the guidelines mentioned in the RBI act. The central board of directors are endowed with the authority to actively manage the day to day affairs of the RBI.

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Functions of the RBI:

Some of the key functions of the RBI are as follows:

  • The RBI holds the monopoly of issuing currency notes and coins in India. Therefore it is authorized with the responsibility of printing, distributing and regulating the flow of money as well as controlling currency counterfeiting.
  • It acts as a banker to the state and central government. It provides them with credit whenever to fund developmental projects and meet credit shortfalls and carries out the function of a banker to the government.
  • It supervises and monitors the functions of all the commercial banks in the country. It provides assistance to all banks in various matters and dictates the interest rate and the CRR limits.
  • One of the main functions of the RBI is to maintain the value of rupee by acting as the custodian of foreign exchange reserves in the country.
  • The RBI controls the flow of credit in the economy. It uses quantitative and qualitative methods to increase or decrease the flow of credit in the economy. Thus it also keeps inflation in check.

See Also: Know Functions and Responsibilities of the Reserve Bank Of India

Role of RBI in India’s Growth:

The above-mentioned function performed by the RBI already highlights its importance in the country. The role of RBI has further changed due to the changing scenario of the country. In the previous year, the RBI has reduced its borrowing rates to 6% to boost industries and trade. This move is important as it may boost borrowings across all sectors of the economy.

The IMF and the World Bank have given positive reports on India GDP. IN April 2019, the world bank projected India’s GDP would expand by 7.5% in 2020. The IMF too has expected a GDP growth of 7.5% in 2020. These projections indicate India as one of the fasted growing economies.

This data makes the role of RBI more important as the country’s GDP is likely to move higher by 2020.  However, after April 2019, the economy has lost its pace and has received certain setbacks. The borrowing rates have remained high thus limiting borrowing across various sectors. The country has also grappled with a slightly volatile inflation rate towards the end of 2019.

See Also: Monetary Policy of Reserve Bank of India

RBIs Role in the Future Development of the Country:

As the RBI is one of the authorities that play a huge role in economic development, it needs to boost the economy by developing certain key areas. Let’s look into how RBI can drive economic growth to make India a $5 trillion economy:

  • Promoting schemes and policies and driving financial inclusion through RBI
  • Developing the banking infrastructure of the country through innovation
  • Preparing proper interest rate structure and enhance lending across all sectors to boost economic growth.
  • Promoting credit in priority sectors like agriculture and rural sectors
  • Promoting export finance and industrial finance
  • Developing rural banks and co-operative
  • Implementing the deposit insurance scheme to safeguard the rights of the depositors
  • Introducing better fiscal policies to enhance consumption and increase demand
  • Developing backward areas and providing easy and affordable credit to weaker sections of the economy.
  • Proper monitoring of banks and reducing bad loans

See Also: All You Need To Know About Central Banking

RBI is an apex body that controls and guides the Indian economy. It is the guardian of Indian Economy that facilities growth in the capital markets, FOREX, exports and all other sectors of the economy. It plays a major role in strengthening and developing the country’s economy and financial structure. It is due to RBI’s supervision that all the sector of the economy is growing at a healthy pace.

Since India is one of the fastest-growing economies in the world, it is an emerging market and may become a hub of foreign investment if RBI is able to implement stable taxation and fiscal policies. Thus as a central bank of the country, it has some unique challenges ahead.  The new governor of RBI will be charged with the authority of guiding the monetary policies in the next 3 years.

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