UPSC Prelims 2015 CSAT Paper II · Q45 of 74 Comprehension medium

Passage

The existence/establishment of formal financial institutions that offer safe, reliable, and alternative financial instruments is fundamental in mobilising savings. To save, individuals need access to safe and reliable financial institutions, such as banks, and to appropriate financial instruments and reasonable financial incentives. Such access is not always available to all people in developing countries like India and more so, in rural areas. Savings help poor households manage volatility in cash flow, smoothen consumption, and build working capital. Poor households without access to a formal savings mechanism encourage immediate spending temptations.

With reference to the above passage, consider the following statements : 1. Indian financial institutions do not offer any financial instruments to rural households to mobilise their savings. 2. Poor households tend to spend their earnings/savings due to lack of access to appropriate financial instruments. Which of the statements given above is/are correct ?

  1. (a) 1 only
  2. (b) 2 only ✓ UPSC's answer
  3. (c) Both 1 and 2
  4. (d) Neither 1 nor 2

Why the answer is (b)

• Statement 1 is incorrect because the passage states that access to financial institutions is 'not always available' in rural areas, which implies limited or partial access rather than a complete absence of any financial instruments.

• The passage explicitly notes that poor households without access to a formal savings mechanism are encouraged by 'immediate spending temptations.'

• This lack of access to safe and reliable instruments leads to the inability to mobilize savings effectively, resulting in immediate expenditure.

• Therefore, Statement 2 accurately reflects the passage's assertion that poor households tend to spend due to the lack of appropriate financial instruments.

• Since only Statement 2 is correct, option (b) is the right answer.

Why the other options are wrong

(a) 1 only
Statement 1 is incorrect because the passage indicates limited access rather than a total absence of financial instruments for rural households.
(c) Both 1 and 2
Statement 1 is incorrect because the passage does not claim that Indian financial institutions offer no instruments to rural households, only that access is not always available.
(d) Neither 1 nor 2
Statement 2 is correct as the passage directly links the lack of access to formal savings mechanisms with immediate spending tendencies among poor households.

Asked in the CSAT Paper II of the UPSC Civil Services Preliminary Examination 2015, held on 23 August 2015. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

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