RBI- Role and Functions

Monetary Authority:
Formulates, implements and monitors the monetary policy.
Objective: maintaining price stability while keeping in mind the objective of growth.
Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations within which the country's banking and
financial system functions.

Objective: maintain public confidence in the system, protect depositors' interest and
provide cost-effective banking services to the public.
Manager of Foreign Exchange
Manages the Foreign Exchange Management Act, 1999.

Objective: to facilitate external trade and payment and promote orderly development and
maintenance of foreign exchange market in India.
Issuer of currency:

Issues, exchanges and destroys currency notes as well as puts into circulation coins minted
by Government of India.

Objective: to give the public adequate quantity of supplies of currency notes and coins and
in good quality.
Developmental role
Performs a wide range of promotional functions to support national objectives.
Regulator and Supervisor of Payment and Settlement Systems:

Introduces and upgrades safe and efficient modes of payment systems in the country to
meet the requirements of the public at large.
Objective: maintain public confidence in payment and settlement system
Related Functions

Banker to the Government: performs merchant banking function for the central and the
state governments; also acts as their banker.
Banker to banks: maintains banking accounts of all scheduled bank
 Credit Control Methods
Credit control is most important function of Reserve Bank of India. Credit control in the economy
is required for the smooth functioning of the economy. By using credit control methods RBI tries
to maintain monetary stability. There are two types of methods:
1. Quantitative control to regulate the volume of total credit.
2. Qualitative Control to regulates the flow of credit

Quantitative Measures:-
The quantitative measures of credit control are as follows:
1. Bank Rate Policy

The bank rate is the Official interest rate at which RBI rediscounts the approved bills held
by commercial banks. For controlling the credit, inflation and money supply, RBI will
increase the Bank Rate.
2. Open Market Operations

Open Market Operations refer to direct sales and purchase of securities and bills in the
open market by Reserve bank of India. The aim is to control volume of credit.
3. Cash Reserve Ratio

Cash reserve ratio refers to that portion of total deposits in commercial Bank which it has
to keep with RBI as cash reserves.
4. Statutory Liquidity Ratio

SLR refers to that portion of deposits with the banks which it has to keep with itself as
liquid assets (Gold, approved govt. securities etc.) If RBI wishes to control credit and
discourage credit it would increase CRR & SLR.

Qualitative Measures:-
1. Margin requirements
This refers to difference between the securities offered and amount borrowed by the banks.
2. Consumer Credit Regulation

This refers to issuing rules regarding down payments and maximum maturities of
instalment credit for purchase of goods.
3. RBI Guidelines
RBI issues oral, written statements, appeals, guidelines, warnings etc. to the banks.
4. Rationing of credit
The RBI controls the Credit granted / allocated by commercial banks.
5. Moral Suasion
Psychological means and informal means of selective credit control.
6. Direct Action

This step is taken by the RBI against banks that don’t fulfil conditions and requirements.
RBI may refuse to rediscount their papers or may give excess credits or charge a penal rate
of interest over and above the Bank rate, for credit demanded beyond a limit.

-Scheduled banks and Non Scheduled banks –

What is a Scheduled Bank?

A scheduled bank is a bank that has been included in the Second Schedule of the Reserve Bank of
India (RBI) Act, 1934. As of 31 March 2020, there are 27 scheduled commercial banks in India.
They comprise 21 public sector banks (PSBs), three private sector banks, and three foreign banks.

The RBI has granted scheduled bank status to a bank only if it fulfils certain conditions laid down
in the RBI Act, 1934, and the Banking Regulation Act, 1949. These conditions include a minimum
paid-up capital of Rs. Five Lakhs.

The RBI has also prescribed certain norms relating to the management of a scheduled bank, which
are laid down in the RBI Directions, 2015. These norms include the appointment of a CEO and
other senior management personnel, maintenance of capital adequacy, asset quality, and
profitability.

What is a Non-scheduled Bank?

A non-scheduled bank is a term used to describe a financial institution that is not subject to the
regulations of the Federal Deposit Insurance Corporation (FDIC). This means that if the bank fails,
your deposits may not be insured. These banks are required to comply with the CRR conditions.
 Differences between Scheduled Banks and Non-scheduled Banks

The scheduled banks and non-scheduled banks can be differentiated on the basis of the following
factors including meaning, reserve requirement, safety and security, cash reserve ratio, borrowing,
returns, membership of clearinghouse.

Meaning: The difference between Non-Scheduled and Scheduled banks refers to the manner in
which these banks are regulated by the Reserve Bank of India. The scheduled banks are the banks
that have been included under the Second Schedule of the Reserve Bank of India (RBI) Act, 1934.
On the other hand, the non-scheduled banks are the banks that are not included in this schedule.

Reserve Requirement: Reserve requirement is one of the important factors that determine the
difference between Non-Scheduled and Scheduled banks. The Reserve Bank of India (RBI)
requires all the commercial banks in the country to maintain a certain percentage of their net
demand and time liabilities (NDTL) as a cash reserve. This requirement is known as CRR or cash
reserve ratio. The scheduled banks are required to maintain a CRR of at least 90%. On the other
hand, non-scheduled banks are not subject to any reserve requirements.

Safety and Security: Another difference between Non-Scheduled and Scheduled banks is that the
former is subject to more stringent regulations with regard to safety and security. This is because
the scheduled banks are required to maintain a higher CRR, which makes them more secure.

Cash Reserve Ratio: The cash reserve ratio (CRR) is another important difference between Non-
Scheduled and Scheduled banks. As mentioned earlier, the scheduled banks are required to
maintain a CRR of at least 90%. On the other hand, non-scheduled banks are not subject to any
reserve requirements.

Borrowing: Another difference between Non-Scheduled and Scheduled banks is that the former
can borrow from the RBI, while the latter cannot. The scheduled banks are allowed to borrow up
to a certain limit from the RBI called the repo rate. This helps them to meet their liquidity needs.
On the other hand, non-scheduled banks are not allowed to borrow from the RBI and are dependent
on the money market for their liquidity needs.

Returns: Scheduled banks offer higher returns to their depositors as compared to non-scheduled
banks. This is because the scheduled banks are required to maintain a higher CRR, which makes
them more secure.

Membership of Clearinghouse: Another difference between Non-Scheduled and Scheduled

banks is that only the former can become a member of the clearinghouse. The clearinghouse is an
institution that helps in the clearance of cheques and other instruments. Only scheduled banks are
allowed to become members of this clearinghouse.
Scheduled banks are a great option for students because they offer low-cost services and often
have no minimum balance requirement. Non-scheduled banks may be a better choice for customers
who want to maintain more control over their money or need access to certain features that aren’t
available at scheduled banks.

Cooperative banks
A co-operative bank is a small-sized, financial entity, where its members are the owners and
customers of the Bank. They are regulated by the Reserve Bank of India (RBI) and are registered
under the States Cooperative Societies Act.

The Co-operative Banks have recently been in news after RBI’s restrictions on one of the leading
banks, where they were denied any kind of money withdrawal. This incident of the Punjab and
Maharashtra Co-operative Bank (PMC) has raised questions over the reliability of such financial
entities.

The Co-operative Banks in India are governed as per the Banking Regulations Act 1949
and Banking Laws (Co-operative Societies) Act, 1955.

These Banks have been opened with the motto of ‘no-profit-no-loss’ and thus, do not seek for
profitable ventures and customers only. As the name suggests, the main objective of Co-operative
Banks is mutual help.
Given below are a few important features of Co-operative Banking in India:

 They work on the principle of ‘one person, one vote’. Since these banks are owned by the
members, a Board of Directors is chosen democratically and then they are responsible for
controlling the Organization.

 Farmers can avail agricultural loans on minimum interest rates from the Co-operative
Banks

 Providing easy and accessible loans and credit benefits in the rural areas with scarce
banking facilities

 The annual profit earned is spent on financial reserves and required resources and a part of
it is distributed among the Co-operative members, as per the prescribed limitations
These institutions play a critical role in last-mile credit delivery and in extending financial services
across the length and breadth of the country through their geographic and demographic outreach.

Structure of Co-operative Banks

The structure of a Co-operative Bank is given in the image below:
The image below is as per the annual report released by the Reserve Bank of India in March 2019.
Of the total number of Cooperative Banks in India, they can be divided into two types, which can
further be subdivided:
 Urban Co-operative Banks
 Non-Scheduled UCBs
 Scheduled UCBs
 Rural Co-operative Banks
 State Cooperative Banks
 District Central Cooperative Banks
 Primary Agricultural Credit Societies

Single-state UCBs are regulated by State Registrars of Co-operative Societies (RCS) and multi-
state UCBs are governed by Central Registrar of Co-operative Societies (CRCS).

Advantages of Co-operative Banks

1. These banks have provided aid to the rural population by granting loans and credits with
interest rates, lower in comparison to that asked by local money lenders
2. They have their reach at every corner of the country and have managed to maintain a
personal rapport with the customers
3. Since the bank is owned and governed by the members themselves, they do not seek huge
profits and believe in mutual help
4. The interest rate on deposits is high and on loans is low
5. They promote productive borrowing, in order to reduce the risk of loss
6. Co-operative Banks have helped the farmers by providing them agricultural credits to buy
basic products like fertilizer, seeds, etc.
Disadvantages of Co-operative Banks
1. To lend money, they need investors which are tough to find
2. Over the years, the number of NPAs and overdues have been increasing
3. Since the lack of investors and money, few of them have not been delivering the credits
and money to the rural population
4. Rather than small industrialists, the benefits from Co-operative Banks have been enjoyed
by rich landowners
5. The Co-operative Banks across the country are not equally developed. A few states have
more functioning and beneficial units, while some states have faced loss
6. Political interference has also been observed in these banks
7. With new types of banks opening up, the Co-operative Banks are facing the risk of losing
their customers
8. To overcome this loss, the RBI must take up steps regarding audit facilities and
implementation of strict rules must be followed.

Local Area Banks (LAB)

 Introduced in India in the year 1996

 These are organized by the private sector
 Earning profit is the main objective of Local Area Banks
 Local Area Banks are registered under Companies Act, 1956
 At present, there are only 4 Local Area Banks all which are located in South India

Regional Rural Banks (RRB)

 These are special types of commercial Banks that provide concessional credit to agriculture
and rural sector.
 RRBs were established in 1975 and are registered under a Regional Rural Bank Act, 1976.
 RRBs are joint ventures between the Central government (50%), State government (15%),
and a Commercial Bank (35%).
 196 RRBs have been established from 1987 to 2005.
 From 2005 onwards government started merger of RRBs thus reducing the number of
RRBs to 82
 One RRB cannot open its branches in more than 3 geographically connected districts.
 NBFC·S

 Nonbank financial companies (NBFCs), also known as nonbank financial institutions

(NBFIs) are entities that provide certain bank-like financial services but do not hold a
banking license.
 NBFCs are not subject to the banking regulations and oversight by federal and state
authorities adhered to by traditional banks.
 Investment banks, mortgage lenders, money market funds, insurance companies, hedge
funds, private equity funds, and P2P lenders are all examples of NBFCs.
 Since the Great Recession, NBFCs have proliferated in number and type, playing a key
role in meeting the credit demand unmet by traditional banks.

NBFCs lend and make investments and hence their activities are akin to that of banks; however
there are a few differences as given below:

i. NBFC cannot accept demand deposits;

ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques
drawn on itself;

iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available to depositors of NBFCs, unlike in case of banks.

Non-banking financial companies (NBFCs) have made strong roots in the Indian financial sector
targeting niche segments of the population, mostly catering to small businesses or salaried
employees with their momentary needs.

The significant challenge faced by India's Non-Banking Financial Company (NBFC) industry:

Non-Performing Assets (NPAs).

NPAs refer to loans or advances that have stopped generating interest income or principal
repayment for a specified period, causing financial stress for NBFCs. Addressing NPAs is crucial
for the following reasons:
1. Financial Stability:

Mitigating NPAs is essential for the financial stability of NBFCs. NPAs directly impact
liquidity, profitability, and the overall financial health of NBFCs. By effectively addressing
this challenge, NBFCs can safeguard their sustainability and continue supporting economic
growth.

2. Risk Management:

Effective NPA management is a crucial aspect of risk management for NBFCs. By

identifying, monitoring, and minimizing NPAs, NBFCs can better control credit risks,
maintain asset quality, and enhance their risk mitigation strategies.

3. Investor Confidence:

Addressing NPAs enhances investor confidence in the NBFC sector. Timely resolution of
NPAs demonstrates proactive measures taken by NBFCs to protect their investors'
interests, ensuring a favorable investment environment.

4. Economic Impact:

NPAs have broader implications for the economy. By reducing NPAs, NBFCs can free up
capital, enabling them to channel resources into productive lending. This contributes to
economic growth, job creation, and financial inclusion.

So, how can NBFCs effectively tackle the NPA challenge? Here are some strategies:

1. Rigorous Credit Assessment:

Strengthening credit assessment processes is vital to mitigate the risk of NPAs. NBFCs
should employ robust due diligence, analyze borrower profiles, assess repayment capacity,
and utilize comprehensive risk assessment models.

2. Early Warning Systems:

Implementing early warning systems can help identify potential NPAs at an early stage.
These systems utilize data analytics, predictive modeling, and risk indicators to proactively
detect signs of financial stress and initiate timely remedial measures.
3. Proactive Monitoring and Recovery:

Regular monitoring of loan accounts and proactive measures for recovery can prevent the
escalation of NPAs. NBFCs should establish dedicated teams, leverage technology, and
collaborate with specialized agencies to recover overdue amounts.

4. Restructuring and Resolution:

When faced with stressed accounts, NBFCs should explore viable restructuring and
resolution mechanisms. This may involve renegotiating terms, extending repayment
schedules, or initiating recovery proceedings as per applicable regulations.

TAX
Tax is an obligatory expense enforced on an individual by the state and central government. It is
one of the government’s most significant sources of income that helps them build a country’s
economy and infrastructure.

Direct taxes

Direct tax is levied on the income or profits of people.

For example, a taxpayer pays the government for different purposes, including income tax,
personal property tax, FBT, etc. The burden has to be borne by the person on whom the tax
is levied and cannot be passed on to someone else.

Direct tax is governed and administered by the Central Board of Direct Taxes (CBDT).

Indirect taxes

Conversely, indirect tax is levied by the government on goods and services. Therefore, it
can be shifted from one tax-paying individual to another.

E.g. the wholesaler can pass it on to retailers, who then pass it on to customers. Therefore,
customers bear the brunt of indirect taxes.

Indirect taxes are governed and administered by the Central Board of Indirect Taxes and
Customs (CBIC).
 Major types of Indirect taxes and Direct taxes in India

Here is the list of major types of Indirect taxes:

 Goods and Service Tax– It is one of the existing indirect taxes imposed on various goods
and services. One significant benefit of GST is that it eliminates the tax-on-tax or cascading
effect of the previous tax regime.
 Excise duty – It is a tax imposed on licensing, sale or production of certain goods produced
within the country.
 Sales Tax - Sales tax is a type of indirect tax in which the seller charges a buyer at the time
of selling or exchanging a taxable good. Then the seller repays the tax to the government
on behalf of that buyer. However, the sales tax generally relies upon the authority in power
and the policies implemented by the authority. Some major sales tax types are
manufacturer’s sales tax, wholesale sales tax, use tax, value-added tax, and retai sales tax.

Here is the list of major types of Direct taxes:

 Income tax – It is a type of tax that is imposed on the profits and income earned during
the year. Income tax is the most common example of direct tax. As the term “income tax”
suggests, it is a tax levied by the Central government on income generated by individuals
and businesses in a particular financial year. However, the amount payable for your income
tax depends on how much money you earn under different heads of income. Additionally,
for the financial year of 2022-2023, income tax is applicable to those with an annual income
exceeding Rs 2.5 lakh p.a.

In addition, other examples of direct and indirect tax include corporate tax, value-added tax,
customs duty, and many more.

Advantages and disadvantages of direct tax

Benefits

 Individuals with lower incomes pay lower taxes than people with higher incomes.
Therefore, it is known to be impartial and progressive in nature.
 It curbs inflation and reduces inequalities.
Drawbacks

 There are many fraudulent practices through which taxpayers often pay lower tax or avoid
taxes.
 The documentation process is sometimes complex and time-consuming, thereby creating
inconvenience. Therefore, it is often considered a burden.

Advantages and disadvantages of indirect tax

Benefits

 It ensures that every individual, including the poor, contributes toward nation-building.
 This payment is more convenient as such taxes are already included in the price when
purchasing any product or service.

Drawbacks

 It can result in an increase in the overall price of goods and services.

 Consumers often lack civic consciousness of the tax they are paying.
 The rich and the poor pay the same tax. Therefore, it known to be regressive in nature.

Canons of Taxation
Pioneering economist Adam Smith put forth four basic rules and principles of fair tax policy in his
famous book- The Wealth of Nations. We can understand the four maxims or dictums as the canons
of taxation.

1. Equity –

Equity as a canon of taxation implies that the taxes people, institutions, or organizations
have to pay should be proportional to their income. As such, the higher a person’s income,
the more will be the tax they have to pay, and vice versa.

2. Certainty –

It refers to the idea that taxes should be clear and transparent. The notion behind ‘certainty’
is that every taxpayer should know or should have the tools to quickly find out how much
tax they have to pay when they have to pay and how they have to pay their taxes. The
importance of certainty is that it equips taxpayers to consider their taxes while formulating
their budget. Lastly, transparency also enhances public acceptance and trust.
 3. Convenience –

It implies that both the timing as well as a mode of paying the tax should be convenient for
taxpayers. As such, governments and other authorities should design the taxation
accounting ecosystem so that people can effortlessly make their payments.

4. Economy –

The last canon of taxation refers to the notion that the cost of collecting taxes should be
minimized. The reasoning is that the money collected from taxes should be used for the
welfare and benefit of the taxpayers. In other words, the government should ensure that the
collection of taxes requires the least possible expenditure.

Budgetary Procedure
A government budget is an annual financial statement which outlines the estimated government
expenditure and expected government receipts or revenues for the forthcoming fiscal year. In most
parliamentary systems, the budget is presented to the lower house of the legislature and often
requires approval of the legislature. Through this budget, the government implements economic
policy and realizes its program priorities. Once the budget is approved, the use of funds from
individual chapters is in the hands of government, ministries and other institutions. Revenues of
the state budget consist mainly of taxes, customs duties, fees and other revenues. State budget
expenditures cover the activities of the state, which are either given by law or the constitution. The
budget in itself does not appropriate funds for government programs, which requires additional
legislative measures.

Types of Budget-

1. Union budget:
The union budget is the budget prepared by the central government for the country as a
whole. The Union Budget of India, also referred to as the Annual Financial Statement in
the Article 112 of the Constitution of India, is the annual budget of the Republic of India.
The Government presents it on the first day of February so that it could be materialized
before the beginning of new financial year in April.
2. State budget:
In countries like India, there is a quasi-federal system of government thus every state
prepares its own budget.
3. Plan budget:
 It is a document showing the budgetary provisions for important projects, programmes and
schemes included in the central plan of the country. It also shows the central assistance to
states and union territories.
4. Performance budget:
The central ministries and departments dealing with development activities prepare
performance budgets, which are circulated to members of parliament. These performance
budgets present the main projects, programmes and activities of the government in the light
of specific objectives and previous years' budgets and achievements
5. Supplementary budget:
This budget forecasts the budget of the coming year with regards to revenue and
expenditure.
6. Zero-based budget:
This is defined as the budgetary process which equires each ministry/department to justify
its entire budget in detail. It is a system of budget in which all government expenditures
must be justified for each new period
A budget can also be classified into the following types:
1. Balanced budget:
When government receipts are equal to the government expenditure.
2. Deficit budget:
When government expenditure exceeds government receipts.
A deficit can be of 3 types: revenue, fiscal and primary deficit.
3. Surplus:
When government receipts exceed expenditure

Classification of Receipts –
In economics, the term "receipts" typically refers to the financial inflow or income generated by
individuals, businesses, or governments.
Government Receipts:
Government receipts represent the revenue collected by a government through various means,
including taxation, fees, fines, and other sources. Government receipts are a critical component of
a nation's fiscal policy and budget. They fund public services, infrastructure development, and
government operations. The analysis of government receipts is vital for understanding a country's
fiscal position and its ability to finance public expenditures.
Business Receipts:
In the context of businesses, receipts refer to the income generated from the sale of goods or
services. These sales receipts are a fundamental indicator of a company's revenue and financial
performance. They are used to calculate revenue, assess profitability, and make financial decisions.
Additionally, businesses maintain records of receipts for expenses incurred, such as costs of goods
sold, employee salaries, utility bills, and other operational expenses. These expense receipts are
crucial for calculating profitability and managing costs.
Trade Receipts:
In international economics, trade receipts refer to the income generated from exports of goods and
services. These receipts are a key component of a country's balance of payments, which tracks
international transactions. Trade receipts provide insight into a nation's trade surplus or deficit and
its economic relations with other countries.
Personal Finance Receipts: On a personal finance level, receipts are records of an individual's or
household's income and expenses. Personal income receipts include salary, investments, rental
income, and other sources of income. Expense receipts track expenditures, such as rent, groceries,
utilities, and discretionary spending.
Economic Analysis: Economists use receipts data to analyze various economic indicators,
including gross domestic product (GDP), consumer spending patterns, and tax revenue. Receipts
and expenditure data are crucial for assessing economic growth, inflation, and overall economic
health.
Taxation: Receipts play a significant role in tax systems. They are used to support tax deductions,
as taxpayers can deduct legitimate business expenses and certain personal expenses from their
taxable income. Governments also rely on receipts to verify tax compliance.

Classification of Expenditure
Expenditure is referred to as the act of spending time, energy or money on something. In
economics, it means money spent on purchasing any goods or services.
There are two categories of expenditures which are:
 Revenue Expenditures
 Capital Expenditures

Revenue Expenditures
Revenue expenditures are the expenditures incurred for the basis other than the creation of physical
or financial assets of the central government. These are associated with the expenses incurred for
the normal operations of the government divisions and various services, interest payments on debt
sustained by the government, and grants given to state governments and other parties (even though
some of the endowments might be meant for the creation of assets).

Budget documents allocate total expenditure into plan and non-plan expenditures. These are shown
in item 6 on the table within revenue expenditure, a distinction is made between plan and non-
plan. According to this categorization, a plan revenue expenditure is associated with central plans
(the Five-Year Plans), and central aid for state and union territory plans.

Non-plan expenditure, the more significant component of revenue expenditure, covers a broad
degree of general, economic, and social services of the government. The main objects of a non-
plan expenditure are interest payments, defence services, subsidies, salaries, and pensions.

Capital Expenditures
There are the expenditures of the government that result in the creation of physical or financial
assets, or depletion in financial liabilities. This incorporates expenditure on the investment of
building, land, equipment, machinery, investment in shares, and loans and advances by the central
government to state and union territory governments, Public Sector Undertakings (PSUs), and
other parties.
Capital expenditure is also classified as plan and non-plan in the budget documents. A plan capital
expenditure, like its revenue equivalent, is associated with central plan and central assistance for
state and union territory plans. A non-plan capital expenditure covers different general, social, and
economic services furnished by the government.

Various Measures of government Deficit -their Meaning and Implications-

When a government's spending exceeds its revenue, it results in a deficit. This deficit is an
indicator of the economic health of a nation. To bridge the gap between expenditure and income,
the government may need to cut down on certain expenses or find ways to boost revenue.

This piece will provide an in-depth understanding of the government deficit and its various
measures. Each measure has its own implications for the economy, which includes:

o Revenue Deficit
o Fiscal Deficit
o Primary Deficit

Revenue deficit arises when the government's revenue expenditure surpasses its revenue receipts.
This deficit is calculated as:
Revenue Deficit = Revenue Expenditure – Revenue Receipts
This deficit takes into account the current income and expenses. A high deficit is a sign that the
government needs to curtail its expenses or find ways to increase its revenue receipts, such as
raising income tax or selling off assets.

Fiscal Deficit is the difference between the total expenditure of the government and its total
receipts, excluding borrowings. It can be calculated as:
Gross Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-debt Creating Capital
Receipts)
Fiscal deficit indicates the total borrowing requirements of the government from all sources. It
comprises of:
Gross Fiscal Deficit = Net Borrowing at Home + Borrowing from RBI + Borrowing from
Abroad)

The primary deficit refers to the amount that the government needs to borrow to pay off the
interest on previously borrowed loans. It is calculated as:

Gross Primary Deficit = Gross Fiscal Deficit – Net Interest Liabilities

Net interest liabilities include interest payments minus interest receipts by the government on net
domestic lending.

IMF and the World Bank.

Founded at the Bretton Woods conference in 1944, the two institutions have complementary
missions. The World Bank Group works with developing countries to reduce poverty and increase
shared prosperity, while the International Monetary Fund serves to stabilize the international
monetary system and acts as a monitor of the world’s currencies.

The World Bank Group provides financing, policy advice, and technical assistance to
governments, and also focuses on strengthening the private sector in developing countries.

The IMF keeps track of the economy globally and in member countries, lends to countries with
balance of payments difficulties, and gives practical help to members.

Countries must first join the IMF to be eligible to join the World Bank Group; today, each
institution has 189 member countries.

The World Bank Group

The World Bank Group is one of the world’s largest sources of funding and knowledge for
developing countries. Its five institutions share a commitment to reducing poverty, increasing
shared prosperity, and promoting sustainable development.
Together, IBRD and IDA form the World Bank, which provides financing, policy advice, and
technical assistance to governments of developing countries. IDA focuses on the world’s poorest
countries, while IBRD assists middle-income and creditworthy poorer countries.
IFC, MIGA, and ICSID focus on strengthening the private sector in developing countries. Through
these institutions, the World Bank Group provides financing, technical assistance, political risk
insurance, and settlement of disputes to private enterprises, including financial institutions.

The International Monetary Fund

The IMF works to foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic growth, and reduce
poverty around the world.

The IMF's primary purpose is to ensure the stability of the international monetary system—the
system of exchange rates and international payments that enables countries and their citizens to
transact with each other. It does so by keeping track of the global economy and the economies of
member countries, lending to countries with balance of payments difficulties, and giving practical
help to members.

India is represented at the IMF by an Executive Director, currently Dr. Rakesh Mohan, who also
represents three other countries as well, viz. Bangladesh, Sri Lanka and Bhutan.

India’s current quota in the IMF is SDR (Special Drawing Rights) 5,821.5 million, making it the
13th largest quota holding country at IMF and giving it shareholdings of 2.44%.

However, based on voting share, India (together with its constituency countries Viz. Bangladesh,
Bhutan and Sri Lanka) is ranked 17th in the list of 24 constituencies at the Executive Board.

World Bank assistance in India started from 1948 when a funding for Agricultural Machinery
Project was approved. World Bank resident mission was established in India in 1957.

In August 1958, the first meeting of the Aid India Consortium was held at Washington DC under
the aegis of the World Bank