Household savings and internal debt instruments — UPSC Prelims PYQ 2022
With reference to the Indian economy, consider the following statements:
- A share of the household financial savings goes towards government borrowings.
- Dated securities issued at market-related rates in auctions form a large component of internal debt.
Which of the above statements is/are correct?
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Explanation
Statement 1 is correct
- A portion of household financial savings in India does indeed go towards government borrowings.
- This can happen through various channels, such as Small savings schemes, Popular schemes like Public Provident Fund (PPF), National Savings Certificates (NSCs), and Kisan Vikas Patra (KVP) are invested in government debt.
Statement 2 is correct
- The Government of India raises funds by issuing dated securities, which are long-term bonds with a fixed maturity. These are issued through auctions at market-determined interest rates based on demand and supply. They form a major component of the government’s internal debt, i.e., debt owed to domestic investors.
Answer: (c) Both 1 and 2; Difficulty Level: Medium
