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Elaborate upon the functions of Reserve Bank of India (RBI). Why is RBI known as the ‘lender of the last resort’?

Topic:  Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

4. Elaborate upon the functions of Reserve Bank of India (RBI). Why is RBI known as the ‘lender of the last resort’? (250 words)

Difficulty level: Easy

Reference: Insights on India

Why the question:

The question is part of the static syllabus of General studies paper – 3 and mentioned as part of Mission-2022 Secure timetable.

Key Demand of the question:

To write about the role of RBI especially as the ‘lender of the last resort’.

Directive word:

Elaborate – Give a detailed account as to how and why it occurred, or what is the context. You must be defining key terms wherever appropriate and substantiate with relevant associated facts.

Structure of the answer:

Introduction: 

Begin by giving a brief about RBI and its role in the monetary policy of India.

Body:

Firstly, write the various functions performed by RBI – Monetary Policy of the Country, Inflation  control, Decides benchmark interest rate, Government’s banker and Regulator of Foreign Exchange etc.

Next, write about why RBI is known as the ‘lender of the last resort’.

Conclusion:

Conclude by summarising.