Question 10
1. A share of the household financial savings goes towards government borrowings.
2. Dated securities issued at market-related rates in auctions form a large component of internal debt.
Which of the above statements is/are correct?
AOptions
BSolution
Let's analyze the statements regarding the Indian economy and government borrowings:
1. A share of the household financial savings goes towards government borrowings: Households save a significant portion of their income through various financial instruments like bank deposits, small savings schemes (e.g., PPF, NSC), insurance, and mutual funds. These savings are then channeled by financial intermediaries (banks, insurance companies, provident funds) into investments, including government securities. Commercial banks, for instance, are mandated to hold a certain portion of their deposits in government securities (Statutory Liquidity Ratio - SLR), effectively using household savings to finance government debt. This statement is correct.
2. Dated securities issued at market-related rates in auctions form a large component of internal debt: Dated securities are long-term government bonds that have a fixed maturity period. The Indian government raises a substantial portion of its internal debt by issuing these securities through auctions conducted by the RBI, where the interest rates are determined by market forces. These securities are indeed a very large and crucial component of the government's internal debt. This statement is correct.
CStrategy
To answer questions on public finance, understand the various sources of government borrowing and the types of instruments used. Familiarity with basic concepts of financial markets and savings patterns in the economy is also beneficial.
DSyllabus Analysis
This question falls under the Indian Economy section, specifically public finance, government debt, and financial markets.
EQuestion Analysis
Easy to Medium. It tests general knowledge about government finance and savings in India.