Reserve Bank Of India – a brief for young students

By Sisir Panda

Dear students, have you seen the RBI building in Bhubaneswar? We will learn something about it today. Not the building but the RBI’s function. Management corner is not for management students only. Read on if you are in class IX or above.

Every country has a bank like Reserve Bank. These banks are known as central banks. They are not like our usual banks where you go and open an account. But they play a major role in the economy. Please go through the RBI website (www.rbi.org.in) in your free time. In the very first page to your right you will find among others a title ‘for common person’. Click it. Then you come to a new page. On the menu bar at the top there is an icon ‘financial education’. If you click it then you get a few options. One of them is for school children. There are cartoons and comics. Read them and you will have a fair idea of the RBI.

What are its important activities?

·        It prints notes under tight security. Controls their circulation.

·        It works as banker to the government and other banks.

·        If you want to establish a bank, you have to take permission from RBI.

·        RBI monitors the functioning of  banks in India.

·        Through different instruments and methods it controls and guides the monetary policy of the country.

The last part is a little tough to understand? OK, let us take a simple example. Suppose all of you enjoy Cadbury chocolate or Kitkat for that matter. If you have some money, then all of you will buy the chocolate. There is a small shop near your school which sells it. Now if all of you get a hundred rupees each, then you all rush to the shop. If the shopkeeper has adequate stock, then all of you get the chocolates. Everyone is happy:  the shopkeeper, for selling a large number of chocolates; the chocolate company for increasing its sales and, of course, you, the consumer, for satisfaction of your need. But it may not happen like that always.

Suppose the shopkeeper does not have adequate stock. Then what happens? He may increase the price since the demand is large. He may double it. Now if you all get rupees fifty instead of rupees hundred, then the price may go up but the increase will be small.

RBI basically controls that flow of money. If goods are adequate increase in money supply will ensure growth and happiness. But if prices are rising, then money supply needs to be reduced so that prices remain in control. We all want to stay comfortable, buy well and be happy. The RBI along with the Finance Ministry of the Government of India is primarily entrusted with that job.