UPSC Prelims 2001 Q50: Indian Economy – Fiscal Policy & Budget
Consider the following:
I. Market borrowing
II. Treasury bills
III. Special securities issued to RBI
Which of these is/are component(s) of internal debt?
- (a) I only
- (b) I and II
- (c) II only
- (d) I, II and III
Answer: (d) I, II and III
Explanation
Components of internal debt
| Item | Part of internal debt? |
|---|---|
| I. Market borrowing | Yes — dated government securities sold in the market |
| II. Treasury bills | Yes — short-term borrowing (91, 182 and 364 days) |
| III. Special securities issued to RBI | Yes — securities given to the RBI, e.g. when ad hoc Treasury bills were funded |
| External debt | Loans from foreign governments and institutions — not internal debt |
Internal debt is the Government's borrowing from within the country. It includes market loans, Treasury bills and special securities issued to the RBI and others. So all three are components.
Answer: (d) I, II and III.
Why each option is right or wrong
- (a) Incorrect. Treasury bills and special securities are also internal debt.
- (b) Incorrect. Special securities issued to RBI are also internal debt.
- (c) Incorrect. Market borrowing is the largest part of internal debt.
- (d) CORRECT. All three are components of internal debt.
Key point
Internal debt + 'other liabilities' (small savings, provident funds) = internal liabilities of the Centre.
Remember
Internal debt = market loans + Treasury bills + special securities.
Common mistakes
- Thinking Treasury bills are too short-term to count as debt.
- Leaving out securities held by the RBI.
- Mixing internal debt with external assistance.
Exam tip
Anything the Government owes to lenders inside India is internal debt.
Sources
- Ministry of Finance — Status Paper on Government Debt (Department of Economic Affairs)
- Ministry of Finance — Union Budget, Receipt Budget: statement of internal debt