RAS question
India's foreign exchange reserves are managed by:
Correct answer: (B) Reserve Bank of India.
India's foreign exchange reserves are managed by the Reserve Bank of India.
Explanation
India's foreign exchange reserves are managed by the Reserve Bank of India, not by a ministry or a market regulator. Reserve Bank of India, RBI's Functions and Working places this function in Chapter 19 on foreign exchange reserves and says the RBI Act, 1934 enables the RBI to act as custodian of the reserves and manage them with defined objectives. It also states that the reserves are kept in major convertible currencies and invested with safety, liquidity and return in that order. The same chapter lists the components: Foreign Currency Assets, Special Drawing Rights, Reserve Tranche Position with the IMF and gold. That is why the institutional answer is RBI: it is the statutory central bank handling reserve custody, investment and reserve-management operations.
Why the other options are wrong
- (A) The Ministry of Finance may set policy, but Reserve Bank of India, RBI's Functions and Working identifies the Reserve Bank of India as the custodian and manager of foreign exchange reserves.
- (C) SEBI regulates the securities market, whereas foreign exchange reserve management is a Reserve Bank function.
- (D) NITI Aayog has no reserve-management role, and Reserve Bank of India, RBI's Functions and Working assigns that responsibility to the RBI.
Concept
This tests the external sector part of Indian Economy, especially the institutional role of the central bank in foreign exchange management. It recurs in RAS because reserve components and the authority responsible for them are standard factual anchors in balance of payments questions.