📘 IAS Prelims 2025 — GS-I Q.2 | Classroom Explanation

📌 Question

Q.2) With reference to Economics, consider the following statements:
Which of the following are the sources of income for the Reserve Bank of India?

I. Buying and selling Government bonds
II. Buying and selling foreign currency
III. Pension fund management
IV. Lending to private companies
V. Printing and distributing currency notes

Select the correct answer using the code given below:
(a) I and II only
(b) II, III and IV
(c) I, III, IV and V
(d) I, II and V

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✅ Correct Answer: (d) I, II and V

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🧑‍🏫 Classroom Explanation

A. Core Concept

The Reserve Bank of India (RBI), as the central bank, earns income mainly through monetary operations, foreign exchange management, and currency issuance, not through commercial or welfare activities.

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B. Why the correct options are correct

• Buying and selling Government bonds (I)
RBI conducts Open Market Operations (OMOs) to regulate liquidity. It earns income through:

• Interest on government securities
• Capital gains from bond price movements

• Buying and selling foreign currency (II)
RBI actively intervenes in the foreign exchange market. Profits arise when:

• Foreign currencies are bought at lower rates and sold at higher rates
• Exchange rate fluctuations are favourable

• Printing and distributing currency notes (V)
This generates income through seigniorage:

• The cost of printing currency is far lower than its face value
• The difference accrues as income to the RBI

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C. Why the other options are incorrect

• Pension fund management (III)
RBI does not manage pension funds as an income activity.
Such functions are handled by bodies like EPFO and PFRDA.

• Lending to private companies (IV)
RBI does not lend directly to private companies.
Its lending operations are limited to:

• Commercial banks
• Financial institutions (as part of monetary policy tools)

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D. UPSC Angle / Examiner’s Trap

UPSC deliberately included administrative and commercial-looking activities (like pension management and private lending) to test whether candidates clearly distinguish:

• Central banking functions
  from
• Commercial banking and regulatory roles

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🔗 Bridge Points (For Future Questions)

• RBI income sources are closely linked to monetary policy tools
• Seigniorage is a recurring UPSC favourite in inflation and currency questions
• Difference between RBI vs commercial banks is a high-frequency elimination theme
• Foreign exchange intervention connects RBI with BoP, forex reserves, and exchange rate policy

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📍 GS Mapping

• GS Paper III
• Subject: Indian Economy
• Theme: Monetary Policy, Central Banking, Currency Management
• Nature: Static core concept with current relevance

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