{"id":92013,"date":"2025-06-01T11:12:08","date_gmt":"2025-06-01T11:12:08","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=92013"},"modified":"2025-06-01T11:12:08","modified_gmt":"2025-06-01T11:12:08","slug":"with-reference-to-the-indian-economy-what-are-the-advantages-of-infl","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/","title":{"rendered":"With reference to the Indian economy, what are the advantages of &#8220;Infl"},"content":{"rendered":"<p>With reference to the Indian economy, what are the advantages of &#8220;Inflation-Indexed Bonds (IIBs)&#8221; ?<\/p>\n<ul>\n<li>Government can reduce the coupon rates on its borrowing by way of IIBs.<\/li>\n<li>IIBs provide protection to the investors from uncertainty regarding inflation.<\/li>\n<li>The interest received as well as capital gains on IIBs are not taxable.<\/li>\n<\/ul>\n<p>Which of the statements given above are correct ?<\/p>\n<p>[amp_mcq option1=&#8221;1 and 2 only&#8221; option2=&#8221;2 and 3 only&#8221; option3=&#8221;1 and 3 only&#8221; option4=&#8221;1, 2 and 3&#8243; correct=&#8221;option1&#8243;]<\/p>\n<div class=\"psc-box-pyq-exam-year-detail\">\n<div class=\"pyq-exam\">\n<div class=\"psc-heading\">This question was previously asked in<\/div>\n<div class=\"psc-title line-ellipsis\">UPSC IAS &#8211; 2022<\/div>\n<\/div>\n<div class=\"pyq-exam-psc-buttons\"><a href=\"\/pyq\/pyq-upsc-ias-2022.pdf\" target=\"_blank\" class=\"psc-pdf-button\" rel=\"noopener\">Download PDF<\/a><a href=\"\/pyq-upsc-ias-2022\" target=\"_blank\" class=\"psc-attempt-button\" rel=\"noopener\">Attempt Online<\/a><\/div>\n<\/div>\n<section id=\"pyq-correct-answer\">\nStatement 1 is correct. Inflation-Indexed Bonds (IIBs) protect the investor&#8217;s principal and\/or interest against inflation. By offering this protection, the government reduces the inflation risk for the investor. Consequently, the government can typically issue these bonds at a lower real interest rate (coupon rate) compared to conventional nominal bonds, where investors demand a higher nominal yield to compensate for expected inflation.<br \/>\nStatement 2 is correct. IIBs provide a hedge against inflation risk. The payments received by the investor are adjusted based on changes in a specified inflation index (like the Consumer Price Index), ensuring that the real value of their investment is preserved. This protects investors from the uncertainty of future inflation rates eroding their returns.<br \/>\nStatement 3 is incorrect. Both the periodic interest payments (coupon) received on IIBs and the increase in the principal amount due to inflation indexation are generally taxable under Indian income tax laws. The interest is taxed as income from other sources, and the capital appreciation due to indexation is taxed as capital gains (short-term or long-term depending on the holding period).<br \/>\n<\/section>\n<section id=\"pyq-key-points\">\nInflation-Indexed Bonds are debt instruments where principal and\/or interest payments are linked to an inflation index, protecting investors&#8217; purchasing power. They are a tool for governments to borrow at potentially lower real costs and offer investors inflation protection.<br \/>\n<\/section>\n<section id=\"pyq-additional_information\">\nIn India, the RBI has issued Inflation-Indexed Bonds on behalf of the government. For retail investors, sovereign gold bonds are also sometimes considered an inflation hedge, though they are linked to gold prices, not a general price index.<br \/>\n<\/section>\n","protected":false},"excerpt":{"rendered":"<p>With reference to the Indian economy, what are the advantages of &#8220;Inflation-Indexed Bonds (IIBs)&#8221; ? Government can reduce the coupon rates on its borrowing by way of IIBs. IIBs provide protection to the investors from uncertainty regarding inflation. The interest received as well as capital gains on IIBs are not taxable. Which of the statements &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"With reference to the Indian economy, what are the advantages of &#8220;Infl\" class=\"read-more button\" href=\"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/#more-92013\">Detailed Solution<span class=\"screen-reader-text\">With reference to the Indian economy, what are the advantages of &#8220;Infl<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1092],"tags":[1108,1120,1196],"class_list":["post-92013","post","type-post","status-publish","format-standard","hentry","category-upsc-ias","tag-1108","tag-economic-development","tag-fiscal-policy-revenue","no-featured-image-padding"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>With reference to the Indian economy, what are the advantages of &quot;Infl<\/title>\n<meta name=\"description\" content=\"Statement 1 is correct. Inflation-Indexed Bonds (IIBs) protect the investor&#039;s principal and\/or interest against inflation. By offering this protection, the government reduces the inflation risk for the investor. Consequently, the government can typically issue these bonds at a lower real interest rate (coupon rate) compared to conventional nominal bonds, where investors demand a higher nominal yield to compensate for expected inflation. Statement 2 is correct. IIBs provide a hedge against inflation risk. The payments received by the investor are adjusted based on changes in a specified inflation index (like the Consumer Price Index), ensuring that the real value of their investment is preserved. This protects investors from the uncertainty of future inflation rates eroding their returns. Statement 3 is incorrect. Both the periodic interest payments (coupon) received on IIBs and the increase in the principal amount due to inflation indexation are generally taxable under Indian income tax laws. The interest is taxed as income from other sources, and the capital appreciation due to indexation is taxed as capital gains (short-term or long-term depending on the holding period). Inflation-Indexed Bonds are debt instruments where principal and\/or interest payments are linked to an inflation index, protecting investors&#039; purchasing power. They are a tool for governments to borrow at potentially lower real costs and offer investors inflation protection.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"With reference to the Indian economy, what are the advantages of &quot;Infl\" \/>\n<meta property=\"og:description\" content=\"Statement 1 is correct. Inflation-Indexed Bonds (IIBs) protect the investor&#039;s principal and\/or interest against inflation. By offering this protection, the government reduces the inflation risk for the investor. Consequently, the government can typically issue these bonds at a lower real interest rate (coupon rate) compared to conventional nominal bonds, where investors demand a higher nominal yield to compensate for expected inflation. Statement 2 is correct. IIBs provide a hedge against inflation risk. The payments received by the investor are adjusted based on changes in a specified inflation index (like the Consumer Price Index), ensuring that the real value of their investment is preserved. This protects investors from the uncertainty of future inflation rates eroding their returns. Statement 3 is incorrect. Both the periodic interest payments (coupon) received on IIBs and the increase in the principal amount due to inflation indexation are generally taxable under Indian income tax laws. The interest is taxed as income from other sources, and the capital appreciation due to indexation is taxed as capital gains (short-term or long-term depending on the holding period). Inflation-Indexed Bonds are debt instruments where principal and\/or interest payments are linked to an inflation index, protecting investors&#039; purchasing power. They are a tool for governments to borrow at potentially lower real costs and offer investors inflation protection.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2025-06-01T11:12:08+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"With reference to the Indian economy, what are the advantages of \"Infl","description":"Statement 1 is correct. Inflation-Indexed Bonds (IIBs) protect the investor's principal and\/or interest against inflation. By offering this protection, the government reduces the inflation risk for the investor. Consequently, the government can typically issue these bonds at a lower real interest rate (coupon rate) compared to conventional nominal bonds, where investors demand a higher nominal yield to compensate for expected inflation. Statement 2 is correct. IIBs provide a hedge against inflation risk. The payments received by the investor are adjusted based on changes in a specified inflation index (like the Consumer Price Index), ensuring that the real value of their investment is preserved. This protects investors from the uncertainty of future inflation rates eroding their returns. Statement 3 is incorrect. Both the periodic interest payments (coupon) received on IIBs and the increase in the principal amount due to inflation indexation are generally taxable under Indian income tax laws. The interest is taxed as income from other sources, and the capital appreciation due to indexation is taxed as capital gains (short-term or long-term depending on the holding period). Inflation-Indexed Bonds are debt instruments where principal and\/or interest payments are linked to an inflation index, protecting investors' purchasing power. They are a tool for governments to borrow at potentially lower real costs and offer investors inflation protection.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/","og_locale":"en_US","og_type":"article","og_title":"With reference to the Indian economy, what are the advantages of \"Infl","og_description":"Statement 1 is correct. Inflation-Indexed Bonds (IIBs) protect the investor's principal and\/or interest against inflation. By offering this protection, the government reduces the inflation risk for the investor. Consequently, the government can typically issue these bonds at a lower real interest rate (coupon rate) compared to conventional nominal bonds, where investors demand a higher nominal yield to compensate for expected inflation. Statement 2 is correct. IIBs provide a hedge against inflation risk. The payments received by the investor are adjusted based on changes in a specified inflation index (like the Consumer Price Index), ensuring that the real value of their investment is preserved. This protects investors from the uncertainty of future inflation rates eroding their returns. Statement 3 is incorrect. Both the periodic interest payments (coupon) received on IIBs and the increase in the principal amount due to inflation indexation are generally taxable under Indian income tax laws. The interest is taxed as income from other sources, and the capital appreciation due to indexation is taxed as capital gains (short-term or long-term depending on the holding period). Inflation-Indexed Bonds are debt instruments where principal and\/or interest payments are linked to an inflation index, protecting investors' purchasing power. They are a tool for governments to borrow at potentially lower real costs and offer investors inflation protection.","og_url":"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2025-06-01T11:12:08+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/","url":"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/","name":"With reference to the Indian economy, what are the advantages of \"Infl","isPartOf":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#website"},"datePublished":"2025-06-01T11:12:08+00:00","dateModified":"2025-06-01T11:12:08+00:00","author":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209"},"description":"Statement 1 is correct. Inflation-Indexed Bonds (IIBs) protect the investor's principal and\/or interest against inflation. By offering this protection, the government reduces the inflation risk for the investor. Consequently, the government can typically issue these bonds at a lower real interest rate (coupon rate) compared to conventional nominal bonds, where investors demand a higher nominal yield to compensate for expected inflation. Statement 2 is correct. IIBs provide a hedge against inflation risk. The payments received by the investor are adjusted based on changes in a specified inflation index (like the Consumer Price Index), ensuring that the real value of their investment is preserved. This protects investors from the uncertainty of future inflation rates eroding their returns. Statement 3 is incorrect. Both the periodic interest payments (coupon) received on IIBs and the increase in the principal amount due to inflation indexation are generally taxable under Indian income tax laws. The interest is taxed as income from other sources, and the capital appreciation due to indexation is taxed as capital gains (short-term or long-term depending on the holding period). Inflation-Indexed Bonds are debt instruments where principal and\/or interest payments are linked to an inflation index, protecting investors' purchasing power. They are a tool for governments to borrow at potentially lower real costs and offer investors inflation protection.","breadcrumb":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/exam.pscnotes.com\/mcq\/with-reference-to-the-indian-economy-what-are-the-advantages-of-infl\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/exam.pscnotes.com\/mcq\/"},{"@type":"ListItem","position":2,"name":"UPSC IAS","item":"https:\/\/exam.pscnotes.com\/mcq\/category\/upsc-ias\/"},{"@type":"ListItem","position":3,"name":"With reference to the Indian economy, what are the advantages of &#8220;Infl"}]},{"@type":"WebSite","@id":"https:\/\/exam.pscnotes.com\/mcq\/#website","url":"https:\/\/exam.pscnotes.com\/mcq\/","name":"MCQ and Quiz for Exams","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/exam.pscnotes.com\/mcq\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209","name":"rawan239","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","caption":"rawan239"},"sameAs":["https:\/\/exam.pscnotes.com"],"url":"https:\/\/exam.pscnotes.com\/mcq\/author\/rawan239\/"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/92013","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/comments?post=92013"}],"version-history":[{"count":0,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/92013\/revisions"}],"wp:attachment":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/media?parent=92013"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/categories?post=92013"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/tags?post=92013"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}