With reference to the Indian Public Finance consider the following statements: 1. External liabilities reported in Union Budget are based on historical exchange rates 2. The continued high borrowing has kept the real interest rates high in the economy 3. The upward trend in the ratio of Fiscal Deficit to GDP in recent years has an adverse effect to private investments. 4. Interest payments is the single largest component of the non-plan revenue expenditure of the Union Government. Which of these statements are correct?

The correct answer is C because of the following reasons Statement 1 is incorrect because external liabilities in the Union Budget are reported at the current market exchange rates rather than historical rates to reflect the actual valuation of debt in present terms. Statement 2 is correct as high government borrowing increases the demand for loanable funds in the market which pushes up the real interest rates. Statement 3 is correct because an increasing Fiscal Deficit to GDP ratio often leads to the crowding out effect. When the government borrows heavily to fund its deficit it leaves less capital available for the private sector which adversely affects private investment. Statement 4 is correct because interest payments have traditionally been the largest component of non plan revenue expenditure for the Union Government often exceeding spending on subsidies or defense. Since statements 2 3 and 4 are correct option C is the right choice.