With reference to the Indian economy, consider the following statements : 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 ?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2 ✓ UPSC's answer
- (d) Neither 1 nor 2
Why the answer is (c)
• Statement 1 is correct: household financial savings held in bank deposits, provident funds, insurance and small-savings schemes are channelled by those institutions into government securities, so a share of household savings finances government borrowing.
• Statement 2 is correct: dated government securities sold at market-determined yields in RBI auctions form the largest component of the Centre's internal debt, far exceeding treasury bills and small savings.
• Statutory liquidity requirements on banks and insurers reinforce this flow.
• Hence both 1 and 2, option (c).
Why the other options are wrong
- (a) 1 only
- Statement 2 is also correct: dated securities dominate internal debt.
- (b) 2 only
- Statement 1 is also correct: household savings fund government borrowing indirectly.
- (d) Neither 1 nor 2
- Both statements are correct.
Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2022, held on 5 June 2022. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.