Passage

Passage – 5 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.

What is the crucial message conveyed in the passage ?

(a) Establish more banks
(b) Increase the Gross Domestic Product (GDP) growth rate
(c) Increase the interest rate of bank deposits
(d) Promote financial inclusion ✓ UPSC's answer

Why the answer is (d)

• The passage says safe, reliable financial institutions and instruments are fundamental to mobilising savings, but access to them is not always available, especially in rural areas.

• Without a formal savings mechanism, poor households give in to immediate spending and cannot manage volatile cash flows.

• The message is that everyone, including the rural poor, needs access to formal financial services — which is financial inclusion, option (d).

• Hence option (d).

Why the other options are wrong

(a) Establish more banks: The passage emphasizes the need for access to existing or appropriate financial institutions rather than specifically calling for the establishment of more banks.
(b) Increase the Gross Domestic Product (GDP) growth rate: The text focuses on household-level savings and consumption smoothing, not on macroeconomic indicators like GDP growth rate.
(c) Increase the interest rate of bank deposits: While reasonable financial incentives are mentioned, the primary barrier identified is the lack of access to institutions, not specifically the level of interest rates.

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.