Q. 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
Correct Answer: c) Both 1 and 2
Question from UPSC Prelims 2022 GS Paper
Explanation :
Household Financial Savings and Government Borrowings
In India, household savings are a significant source of funds for the government. Households invest in various financial instruments such as bank deposits, pension funds, insurance schemes, and government securities. A portion of these savings is channeled into government borrowings through the purchase of government bonds and securities. This helps the government to finance its deficit and undertake public expenditures.
Role of Dated Securities in Government’s Internal Debt
The Indian government raises funds through the issuance of dated securities, which are long-term government bonds with a fixed maturity date. These securities are issued at market-related rates, meaning that the interest rates are determined by the demand and supply dynamics in the market. The government conducts auctions for these securities, where various financial institutions and investors bid to purchase them. These dated securities constitute a large portion of the government’s internal debt, which is the debt owed by the government to domestic creditors.
