Banking Sector: Inflation & RBI- 2 - Free MCQ Test with solutions for UPSC

The base year to calculate CPI-AL is 1986-87 and 260 items are included in the index.

The base year to calculate CPI-UNME is 1984-85. 180 items are included in the index.

• Statement (i) is correct – The Reserve Bank of India (RBI) has the sole authority to issue currency notes in India, except for the one-rupee note and coins, which are issued by the Government of India.

• Statement (ii) is incorrect – India follows the Minimum Reserve System (MRS), not the proportional reserve system. Under this system, RBI is required to maintain a minimum reserve of ₹200 crores (₹115 crores in gold and the rest in foreign exchange) to issue currency.

Therefore,Right Answer- Option A

All the options listed are functions of the Reserve Bank of India (RBI):

• Banker to government: RBI acts as a banker, agent, and advisor to the central and state governments.
• Regulation of foreign exchange: RBI regulates the Foreign Exchange Management Act (FEMA) and manages foreign exchange reserves.
• Controller of Credit in the economy: RBI controls the credit flow in the economy through monetary policy tools.

Hence, none of the options is incorrect.

RBI provides advice in all monetary matters including agriculture and industrial finance. RBI is obliged to transact business of central government and state governments including J&K.

RBI is also responsible for regulating banks, directs their credit policies and provides advice to them.

The amount a bank needs to maintain in form of cash, gold and other securities before giving credit is called SLR.

The percentage of demand and time liabilities that banks have to keep with RBI is called cash reserve ratio.

RBI is responsible for transaction of the currencies of IMF countries.

The Reserve Bank of India (RBI) is primarily responsible for several key functions in the banking sector. However, not all listed functions are performed by the RBI.

• The RBI grants branch licenses and oversees the expansion of banks.
• It supervises assets and liabilities within the banking system.
• However, reconstruction and liquidity management is typically not a direct function of the RBI. These activities are more aligned with individual banks and financial institutions.

Thus, option D, reconstruction and liquidity, is not a function of the RBI.

Bank rate is the rate at which banks can borrow from RBI when in need of funds.

CRR, SLR and OMO are various tools in the hands of RBI to influence money supply in the economy.

Union taxes are given in the list of 7th schedule in the constitution.

Taxes levied by the state government include Sales tax, VAT, tax of land & buildings, tax of agricultural income, stamp duty, luxury tax, dividend distribution tax  and entertainment tax. 

Central government has exclusive power to impose tax which is not mentioned in state or concurrent list.

The tax imposed by the union government on individual income is called personal income tax.

The tax on net income of companies is corporate tax. Tax rates are uniform for all categories of companies.

Wealth tax is collected from unproductive assets only. Estate duty was abolished in 1985.

Interest tax was withdrawn in 2000-01, estate duty abolished in 1985 and gift tax in 1998-99.

Sales tax is the tax on sale of goods and is influenced by the value added tax system.