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 ?

Q 5 / 14

UPSC CSE Prelims 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 ?

Both statements are correct.

Statement 1: Household financial savings represent a crucial source of funds for government borrowings. Individuals channel their savings into various instruments, including small savings schemes (such as Public Provident Fund, National Savings Certificates), Post Office deposits, and government bonds. These accumulated funds are subsequently utilized by the government to finance its expenditure and manage its fiscal deficit.
Statement 2: Dated securities, issued at market-related rates through auctions, form a substantial part of the government's internal debt. The government primarily raises funds from the domestic market by issuing these long-term bonds (Government Securities or G-Secs). Their yields are determined by prevailing market conditions during competitive auctions conducted by the Reserve Bank of India.

Options (a) "1 only" and (b) "2 only" are incorrect because both Statement 1 and Statement 2 are factually accurate descriptions of the Indian economy's financial mechanisms.
Option (d) "Neither 1 nor 2" is incorrect as both statements correctly reflect the role of household savings in government finance and the composition of internal debt.

SOURCEIndian Economy by Ramesh Singh, Chapter on Public Finance