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Directions (1-5): Read the following passage carefully and answer the questions given below it. Certain words are given in bold to help you locate them while answering some of the questions.
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Delivering the NaniPalkivala Memorial lecture in the city on Saturday, Dr. Indira Rajaraman, former member of RBI’s central board said, “The ₹68,000 crore that the RBI has paid to the government in the form of dividend or interim dividend since July 2018, forms 92% of the Centre’s entire income from dividends from all public sector financial institutions.”
It means the Centre would then look upon the RBI as a cash cow and start questioning every rupee that the central bank spends, she said. “What the central bank does is foundational for the nation, and hence it must have the freedom to choose its areas of expenditure, including choice of employees.
“They need good training, remuneration, pension and housing. If the government constrains this, it is the people of India who will suffer.” She cited the example of China, which fully pays for its central bank employees’ PhDs in globally-acclaimed institutions in the West. “The RBI cannot be treated on par with a department of the Government of India. It is very separate, special” said Dr. Rajaraman, who was on the faculty of Indian Institute of Management Bangalore, and a member of the 13th Finance Commission.
According to her, the RBI Act is clear that the government, as sovereign, is supreme and the RBI Governor functions under the pleasure of the government. She felt that the media had played a role in building up the persona of the RBI Governor, who is not the chairman of the central bank board, but only convenes the board meetings and presides over them, she said. Dr. Rajaraman added, “There should be mutuality between the RBI and the government.” The RBI’s monetary policy is formulated keeping in mind the fiscal policy of the government, she said. “So, the RBI should be free to be critical of the government’s fiscal policy.”
She added that the central bank must also be free to question the measurement of inflation. “After all, the consumer price index- based inflation is the measure by which RBI is judged.” It was normal for governments and central banks to differ over interest rates, ……(A)……., while the latter would be keen to raise rates if inflation seemed dangerously high. However, what was different in the recent “outbreak of hostilities”, as she called it, between the government and the RBI was the invocation of Section 7 of the RBI Act, which had never been invoked.
“Sec. 7(2) leaves us in no doubt that the functioning of the RBI is entrusted to the central board of the bank. Clause 3 of the section sets out the role of the Governor; it clearly states that the Governor exercises powers vested in him by the central board.” The government not only questioned the decisions of the RBI, but also the process by which those decisions were arrived at. “The government was entirely within its powers to question the process,” she said.
She also said it was ‘unfortunate’ that the services of director on RBI’s board, NachiketMor, were terminated just a year into his second four-year stint, in October 2018. “The Centre has the right to recall these nominations but it created ill-feeling. It was said that the termination was due to his being the country director of the Bill & Melinda Gates Foundation in India, resulting in conflict of interest, but that information was available at the time he was reappointed. So, it reflects poorly on the government’s due diligence if it did not know this.”
Q1. What is the concern raised by the writer in the passage given above?
(a) The monetary policy boards wants the government to be fiscally dependent on the RBI.
(b) The central government being fiscally dependent on the Reserve Bank of India (RBI) is undesirable.
(c) Lack of professional mutual respect between the government and the RBI.
(d) RBI is among the leanest and most efficient organisations in the country, with a headcount of about 15,000 executing myriad functions
(e) The regulator is a monopoly issuer and hence the sovereign has to have ultimate control over such an issuer
Q2. Which of the following phrases should fill the blank given in (A) to make it grammatically and contextually correct and meaningful?
(a) excited by the possibility of extra margins from sale of exotic instruments
(b) where the former would want low rates to spur growth
(c) amid a face-off with the government over issues related to governance
(d) provides details on search committee
(e) where the former informed that the requisite information
Q3. How were the recent “outbreak of hostilities” different from the incidences that happened in past?
(i) Section 7 of the RBI Act was invoked through which the government even questioned the way the procedure by which RBI arrived at its decisions.
(ii) Services of director on RBI’s board, NachiketMor, were terminated due to his being the country director of the Bill & Melinda Gates Foundation in India.
(iii) RBI Governor functioned under the pleasure of the government.
(a) Only (i)
(b) Only (ii)
(c) Both (i) and (ii)
(d) Both (ii) and (iii)
(e) All of the above
Q4. Choose the word that expresses the most similar meaning to the word “HOSTILITIES” given in bold in the passage.
Q5. Which of the following option(s) is/ are INCORRECT as per the information given in the passage above?
(a) As per the Sec 7(2) of RBI Act, functioning of the RBI is entrusted to the central board of the bank.
(b) RBI must be treated equal to all other Government departments and given equal importance.
(c) RBI Governor functions under the pleasure of the government.
(d) Central bank must have the freedomto choose its areas of expenditure, including choice of employees.
(e) None of the above
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