UPSC Prelims 2018 Q56: Indian Economy – Financial Markets & Capital Markets
- (a) 1 and 2 only
- (b) 3 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Answer: (c) 2 and 3 only
Explanation
Government Securities and Treasury Bills
| Statement | Claim | Verdict | Detail |
|---|---|---|---|
| 1 | RBI manages GoI Securities but NOT State Government Securities | FALSE | RBI, under the RBI Act, 1934 (Section 21A) and agreements with states, manages both Central and State Government securities (called SDLs - State Development Loans). Only Sikkim and Meghalaya historically maintained their own arrangements. |
| 2 | Treasury bills are issued by GoI only; no State Treasury bills | TRUE | T-bills are issued only by the Central Government (Government of India). States raise short-term funds through Ways and Means Advances (WMA) from RBI, not treasury bills. |
| 3 | T-bills are issued at a discount to par value | TRUE | T-bills are zero-coupon instruments issued at a discount and redeemed at face value. The difference is the investor's return. T-bill tenors in India: 91, 182, 364 days. |
Answer: (c) 2 and 3 only.
Why each option is right or wrong
- (a) Incorrect. Statement 1 is wrong - RBI manages both Central and State government securities.
- (b) Incorrect. Statement 2 is also correct - T-bills are Centre-only.
- (c) CORRECT. Statements 2 (T-bills are Centre-only) and 3 (issued at discount) are right; Statement 1 wrongly excludes SDLs.
- (d) Incorrect. Statement 1 is factually wrong - RBI does manage State Government securities.
Key point
Government debt instruments: Centre = G-Secs (dated) + T-bills (91/182/364 days) at discount. States = SDLs (State Development Loans), managed by RBI. States do NOT issue T-bills; they use WMA for short-term needs.
Remember
The Reserve Bank of India manages and services both Government of India securities AND State Government securities (SDLs). Treasury bills are issued only by the Central Government - states use Ways and Means Advances for short-term borrowing. T-bills are zero-coupon instruments issued at a discount to face value and redeemed at par, with tenors of 91, 182 and 364 days.
Common mistakes
- Believing RBI only manages Central securities - RBI is the debt manager for both Centre and States (SDLs).
- Confusing T-bills (Centre, discount) with SDLs (States, coupon-bearing).
- Assuming states issue T-bills - they don't; states rely on WMA + SDL for short-term and long-term borrowing respectively.
Exam tip
Debt maturities: T-bills = 91/182/364 days (short). SDLs = medium-long tenor. G-Secs = various tenors. All are dematerialised on RBI's NDS-OM platform.
Sources
- RBI - Master Circular on State Government Guarantees and Debt Management
- RBI - FAQ on Government Securities and Treasury Bills