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Q31 (IAS/2021) Economy › Money, Banking & Inflation › Central banking functions Official Key

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?

Result
Your answer: —  ·  Correct: C
Explanation

The correct answer is Option 3 (1 and 3 only) based on the following legal and constitutional framework:

  • Statement 1 is correct: As per Section 8 of the Reserve Bank of India (RBI) Act, 1934, the Governor and Deputy Governors are appointed by the Central Government. Specifically, the Financial Sector Regulatory Appointments Search Committee (FSRASC) shortlists candidates, and the Appointments Committee of the Cabinet (ACC) finalizes the selection.
  • Statement 2 is incorrect: The Constitution of India does not contain any provisions regarding the RBI or the power to issue directions to it. Instead, this power is derived from Section 7 of the RBI Act, 1934, which allows the Central Government to issue directions to the Bank in the public interest after consultation with the Governor.
  • Statement 3 is correct: The RBI is a statutory body, and the Governor derives all executive and administrative powers from the RBI Act, 1934, which governs the bank's functions and management.
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PROVENANCE & STUDY PATTERN
Guest preview
Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. Consider the following statements : 1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government. 2. Certain…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 6.7/10 · 3.3/10
You're seeing a guest preview. The Verdict and first statement analysis are open. Login with Google to unlock all tabs.

This is a classic 'Current Affairs disguised as Static' question. The 2018-19 controversy regarding the invocation of Section 7 of the RBI Act (leading to Urjit Patel's resignation) was the hidden trigger. The trap lies in Statement 2: swapping 'RBI Act' with 'Constitution'. If you missed the legal nuance in the news, you missed the question.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Which authority appoints the Governor of the Reserve Bank of India (RBI)?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 3: Money and Banking - Part II > Reserve Bank of India > p. 130
Presence: 5/5
“He draws his powers from the RBI Act and not from the Central Board. He is appointed by the Prime Minister in consultation with the Finance Minister. The RBI Board has no say whatsoever in his appointment. In a company, the board of directors chooses one of its own to be appointed as the managing director. In the RBI, the Governor secures board membership only after he is appointed to the post. It is, thus, wrong to compare a corporate board to the RBI's and suggest that the Governor is subservient to it. In RBI, policy decisions are taken by the Governor with its 4 deputy governors and the (Central) Board is just engaged in providing a broader vision to the RBI.”
Why this source?
  • Directly states the Governor is appointed by the Prime Minister in consultation with the Finance Minister.
  • Specifies that the RBI Central Board has no role in the Governor's appointment, assigning appointment authority to the executive.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.14 RBI and its Functions > p. 65
Presence: 4/5
“The objective of RBI is "to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth; to maintain macroeconomic stability and financial stability." The RBI affairs are governed by a central board of directors (Maximum 21 in number including the governor and four deputy governors who are also on the central board) who are appointed by the government of India in keeping with the Reserve Bank of India Act 1934 for a period of 4 years.”
Why this source?
  • Says members of the Central Board, including the Governor and four deputy governors, are appointed by the Government of India under the RBI Act.
  • Provides statutory framing that the government (executive) makes these appointments and notes a four-year period for board appointments.
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