rbi in the developments in the indian economy? my submission is that the rbi has, as part of public policy, made some contributions to overall price stability and financial stability while enabling respectable growth in the recent period. further, it is generally recognised that the financial sector and the external sector in india display considerable strength and resilience, though there are some areas that need attention. in india, most of the literature on public administration concentrates on organisation and functioning of central and state governments, statutory corporations, public enterprises, and constitutional bodies. perhaps there is merit in devoting the rest of the address to filling up this gap and discussing organisation and functioning of the rbi, in some detail. on the rbi ’ s mandate i requested my friend shri kale – our friendship is a little over thirty years old – to advise me on the focus of today ’ s address. he said that i could shed some light on what rbi does. in particular, he suggested that i may narrate the process of decision making in the rbi and the extent to which the ministry of finance comes into the picture. i believe that shri kale was being not merely inquisitive but also mischievous by posing some complex, if not controversial, issues in a somewhat innocuous fashion. yet, i will take the bait. the rbi was established under the reserve bank of india act, 1934 on april 1, 1935 as a private shareholders'bank, but is fully owned by the government of india, since its nationalisation in 1949. the preamble to the rbi act describes the basic objective of the constitution of the rbi as “ to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in india and generally, to operate the currency and credit system of the country to its advantage ”. thus, there is no explicit mandate for price - stability or formal inflation targeting. over the years, the twin - objectives of monetary policy in india have evolved as : maintaining price stability and ensuring adequate flow of credit to facilitate the growth process. the relative emphasis between the twin - objectives is modulated as per the prevailing circumstances and is articulated in the policy statements. consideration of macroeconomic and financial stability is also subsumed in the articulation of policy. the rbi is also entrusted with the management of foreign exchange reserves, which are reflected in its balance sheet. while the rbi is essentially a monetary authority, its founding statute mandates it to be the manager of public debt of the government of

india and the banker to the government. while the rbi is the monetary authority of the country, as per its founding statute, the rbi has also been entrusted with the work relating to banking regulation and supervision by a separate enactment in 1949, viz. the banking regulation act. the rbi exercised a tight regime of exchange control particularly under the foreign exchange regulation act ( fera ), 1973 ; but, a qualitative change was brought about in the legal framework to enable liberalisation by the enactment of the foreign exchange management act ( fema ) in june 2000 which replaced the fera. with this, the objectives of foreign exchange regulation have been redefined as the facilitating of external trade and payments as well as the orderly development and functioning of the foreign exchange market in india. it is significant to note that the rbi act precludes the rbi from performing certain business such as trading ; taking any direct interest in any commercial, industrial or other undertaking ; purchasing of shares or giving of loans against shares of any company ; advancing of money on the security of immovable property, and the drawing or accepting of bills payable otherwise than on demand. these prohibitions are meant to protect the integrity of the institution. governance arrangements the " general superintendence and direction of the affairs and business " of the rbi are " entrusted to the central board of directors ". the central board nominated by the government, consists of fourteen eminent persons 1 drawn from different walks of life, who are the non - official directors. the secretary dealing with economic affairs in the ministry of finance is also a director on the central board and has voice but not vote. further, the governor, and the deputy governors, are also appointed by the government, as the chairman and non - voting directors of the board, respectively. the central board meets at least six times in a year and at least once a quarter. the rbi general regulations, 1949, mandate a committee of the central board ( ccb ), which is in the nature of an executive board and meets once a week. the ccb quorum demands the presence of at least one non - official director. currently, the normal attendance for the weekly meetings is three or four of the five non - official directors who are residing in mumbai. the weekly meetings review the economy and the financial market developments, and approve the weekly accounts of the rbi ( which are placed on rbi website every week soon after their approval ) and all other matters relating to the general conduct of rbi ’ s business