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Permanent Finance Commission

RBI Demands Permanent Finance Commission

  • Reserve Bank of India (RBI) governor Shaktikanta Das called for permanent status to Finance Commission.
  • He is also the member of the 15th finance Commission.

Why is the necessity of the Permanent Status?

  • There is a need to ensure consistencies between finance commissions so that there is some certainty in the flow of funds to states.
  • The permanent status will also provide for the finance commission to function as a leaner entity in the intervening period until the next finance commission is set up in a full-edged manner.
  • The permanent status will also enable it to address issues arising from the implementation of the recommendations of the Finance Commission during the intervening period.

Finance Commission

  • It has been established by the President of India in 1951 under Article 280 of the Indian Constitution.
  • It defines the financial relations between the Central government of India and the individual state governments.
  • The Commission is appointed every five years.
  • It consists of a Chairman and four other members.
  • The Chairman of the 15th finance commission is chaired by N. K.Singh, a former member of the Planning Commission.

Functions of RBI

1 . Banking Functions

  • Section 17 of the RBI Act enables RBI to do banking business, such as accepting deposits, without interest, from any person.
  • The other businesses, which the RBI may transact are also mentioned in the said provision.
  • It states that the RBI may transact various businesses such as acceptance of deposits without interest from Central Government and State Governments, purchase, sale and rediscount of Bills of Exchange, short term Loans and Advances to banks, annual Contributions to National Rural CreditFunds, dealing in Derivatives, purchase and sale of Government Securities,purchase and sale of shares of State Bank of India, National Housing Bank, Deposit Insurance and Credit Guarantee Corporation, etc., keeping of deposits with SBI for specific purposes, making and issue of Banknotes, etc .
  • Section 18 facilitates the RBI to act as a ‘Lender of Last Resort’ whereas
  • Section 19 states the list of businesses which the RBI may not transact.
  • Sections 20 and 21 of the RBI Act,the RBI shall have an obligation and right respectively to accept monies for account of the Central Government and to make payments up to the amount standing to the credit of its account, and to carry out its exchange, remittance and other banking operations, including the management of the public debt ofthe Union.
  • In the case of State Governments, the said banking functions may be undertaken by way of an agreement between the RBI and the State Government concerned as provided in Section 21-A of the RBI Act. These agreements madebetween the RBI and the State Governments are statutory as they are required to be laid before the Parliament as soon as they are made

2 . Issue Functions

  • Section 22 of the RBI Act confers the RBI with the sole right toissue bank notes in India

3 . Monetary Policy Functions

  • Chapter III-F of the RBI Act provides for a statutory basis for the Monetary Policy Framework and the Monetary Policy Committee
  1. Public Debt Function
  • The Parliament of India enacted the Government Securities Act, 2006 (‘GS Act’) with an objective to consolidate and amend the law relating to Government securities and its management by the Reserve Bank of India .
  • The GS Act applies to Government securities created and issued by the Central Government or State Government .
  • The GS Act prescribes the procedure and modalities to be followed by the RBI in the management of the public debt and also confers various powers on the RBI including the power to determine the title to  Government security if there exists any doubt in the opinion of the RBI .
  • Further,Section 18 of the GS Act provides that no order made by the RBI under this Act shall be called in question by any Court for the reasons stated therein.
  • Prior to the enactment of the GS Act, the said public debt functions of the RBI have been governed under the provisions of the Public Debt Act, 1944.

5 . Foreign Exchange Management

  • The powers and responsibilities with respect to external trades and payments,development and maintenance of foreign exchange market in India are conferredon the RBI under the provisions of the Foreign Exchange Management Act, 199

6 . Banking Regulation and Supervision

  • The power to regulate and supervise banks has been provided under theprovisions of the Banking Regulation Act, 1949 (BR Act, 1949) to the RBI
  • Powers of RBI to formulate banking policy, regulate banking business, protect the interests of banking companies, supervision of banking companies, etc., are scattered across the provisions of the BR Act, 1949

Other Functions

  • Regulation and supervision of NBFC
  • Regulation of Derivatives and Money Market Instruments
  • Payment and Settlement Functions
  • Consumer Protection Functions
  • Financial Inclusion and Development Functions

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