InvestorQ : What is the role of the RBI chief in the Union Budget?
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What is the role of the RBI chief in the Union Budget?

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1 year ago
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The Reserve Bank of India (RBI) is the central bank of India, which was established on Apr. 1, 1935, under the Reserve Bank of India Act. The main purpose of the bank is to supervise the financial sector in India made up of commercial banks, financial institutions, and non-banking financial firms. However, the core and the highest responsibility given to RBI and the RBI chief is to formulate, implement and monitor India’s monetary policy.

In India, there are two broad dimensions of economic policies: Fiscal and Monetary. Since the Finance Ministry takes care of the fiscal policies such as the deficit, taxes, etc., the RBI is only responsible to work on the monetary policy. The RBI and its chief governs the money supply and the interest rates to check on the inflation in the market. It does it by various policies such as Reserve Ratio, Repo rate, and Open Market Operations (OMO).

With the Union Budget, it is the responsibility of the Finance Ministry to create and present. Hence, the RBI plays no role in the formulation of the Union Budget but provides synergy and data related to the monetary situation in India to the Finance Ministry to allow for a technically sound Union Budget.

However, there is an important thing that the RBI does for the formulation of the Union Budget. It is the regulation of overdrafts sanctioned by the Indian Government. It is a secret document that is only placed in both the houses of the parliament. The Finance Ministry makes the documents with data from the RBI which is placed one day before the submission of the Union Budget. Apart from this, RBI and its chief have no say in the Union Budget.
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