With reference to the Indian economy, consider the following statement

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?

[amp_mcq option1=”1 only” option2=”2 only” option3=”Both 1 and 2″ option4=”Neither 1 nor 2″ correct=”option3″]

This question was previously asked in

UPSC IAS – 2022

Option C is correct.

Government borrowings in India are primarily financed by domestic savings, a significant portion of which comes from households, either directly or indirectly through financial intermediaries. Dated securities issued through market auctions are a major tool for the government to raise these funds and constitute a large part of its internal debt.

Statement 1 is correct. Household financial savings deposited in banks, invested in mutual funds, insurance, or provident funds are channeled into the financial system. Banks and other financial institutions, which hold a large pool of these savings, are major subscribers to government securities (G-Secs) issued for government borrowing. Thus, a significant portion of household financial savings indirectly contributes to government borrowing.
Statement 2 is correct. The Indian government’s internal debt consists mainly of market borrowings (through the issuance of dated securities and treasury bills), as well as funds raised through small savings schemes and state provident funds. Dated securities, issued through auctions at market-related rates, form the largest component of the central government’s internal debt.

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