UPSC Prelims 2022 Q10: Indian Economy – Fiscal Policy & Budget
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
- (d) Neither 1 nor 2
Answer: (c) Both 1 and 2
Explanation
Household savings and government borrowing
| Statement | Verdict | Reason |
|---|---|---|
| 1. Part of household financial savings goes to government borrowing | Correct | Through small savings schemes (PPF, NSC), bank deposits, insurance and pension funds that buy G-Secs |
| 2. Dated securities at market rates form a large part of internal debt | Correct | Dated G-Secs auctioned by the RBI make up the largest share of internal debt |
Components of internal debt:
| Component | Share |
|---|---|
| Dated securities (market loans) | Largest share |
| Treasury bills | Short-term (91, 182, 364 days) |
| Small savings (NSSF) | Significant share via the National Small Savings Fund |
How household money reaches the government:
| Channel | Example |
|---|---|
| Banks | Deposits used to buy G-Secs (SLR requirement) |
| Insurance and pension funds | LIC, EPFO, NPS invest in G-Secs |
| Small savings | PPF, NSC, Sukanya Samriddhi |
Answer: (c) Both 1 and 2.
Why each option is right or wrong
- (a) Incorrect. It leaves out Statement 2; dated securities are the biggest part of internal debt.
- (b) Incorrect. It leaves out Statement 1; household savings fund the government via banks, insurers and small savings.
- (c) CORRECT. Household savings fund government borrowing, and dated securities dominate internal debt.
- (d) Incorrect. Both statements describe India's public debt accurately.
Key point
Household savings flow to government via banks (SLR), insurers, pension funds and small savings; dated G-Secs dominate internal debt.
Remember
Dated securities form most of India's internal debt, funded partly by household savings.
Common mistakes
- Thinking households lend to the government only through direct G-Sec purchases; banks and insurers are the main channels.
- Confusing Treasury bills (short-term) with dated securities (long-term).
- Forgetting that the SLR requires banks to hold government securities.
Exam tip
Follow the money: household deposit → bank → G-Sec → government.
Sources
- Ministry of Finance — Status Paper on Government Debt
- RBI — Handbook of Statistics on Indian Economy