Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
Q8 (IAS/2016) Economy › Economy Current Affairs › Capital market developments Official Key

With reference to 'IFC Masala Bonds', sometimes seen in the news, which of the statements given below is/are correct? 1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank. 2. They are the rupee-denominated bonds and are a source of debt financing for the public and private sector. Select the correct answer using the code given below.

Result
Your answer: —  ·  Correct: C
Explanation

The correct answer is option C because both statements are accurate.

The International Finance Corporation (IFC) is indeed an arm of the World Bank group[2], and the word 'Masala' was used by IFC to symbolize the culture of India for specifically distinguishing Indian rupee-denominated bonds from other bonds[2]. This confirms Statement 1 is correct.

Masala Bonds are rupee-denominated bonds that can be issued by governmental bodies, NBFCs and eligible corporates to raise money from overseas markets[5]. Since they can be issued by both governmental bodies (public sector) and corporates/NBFCs (private sector), they serve as a source of debt financing for both sectors. This confirms Statement 2 is correct.

The first Masala Bond was issued by International Finance Corporation (IFC) in 2014[5], establishing IFC's pioneering role in this instrument. Therefore, both statements 1 and 2 are correct, making option C the right answer.

Sources
  1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > MASALA BOND > p. 266
  2. [2] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > MASALA BOND > p. 266
  3. [3] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
  4. [4] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
  5. [5] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
50%
got it right
PROVENANCE & STUDY PATTERN
Full view
Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. With reference to 'IFC Masala Bonds', sometimes seen in the news, which of the statements given below is/are correct? 1. The Internationa…
At a glance
Origin: From standard books Fairness: High fairness Books / CA: 10/10 · 0/10

This is a textbook example of a 'Current Affairs term anchored in Static Economy'. While Masala Bonds were a buzzword in 2015-16, the question tests fundamental definitions available in standard texts. If a new financial instrument appears in news, you must define: Issuer, Currency, and Risk-bearer.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Is the International Finance Corporation (IFC), issuer of IFC Masala Bonds, part of the World Bank Group (an arm of the World Bank)?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > MASALA BOND > p. 266
Presence: 5/5
“The word 'Masala' was used by IFC (arm of World Bank group) to symbolise the culture of India for specifically distinguishing Indian rupee-denominated bonds from other bonds. Similarly, 'Dim Sum Bonds' are used for bonds issued in Hong Kong, denominated in Chinese Renminbi and Komodo Bonds for Indonesia. Issue of Masala Bonds creates demand for rupee and thus helps in preventing depreciation of currency. Masala Bonds cannot be used for investing in capital markets, purchasing land, etc.”
Why this source?
  • Explicitly identifies IFC as 'arm of World Bank group' in context of Masala Bonds.
  • Links IFC directly to the naming/issuance context of Masala Bonds, tying issuer to World Bank Group identity.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 18: International Economic Institutions > Important Facts > p. 523
Presence: 5/5
“• The term 'World Bank' generally refers to IBRD and IDA as they have the same head and management, while the term 'World Bank Group' refers to a group of five institutions, namely • 1. International Bank for Reconstruction and Development (IBRD) • 2. International Development Association (IDA) • 3. International Finance Corporation (IFC) • 4. Multilateral Investment Guarantee Agency (MIGA) • 5.”
Why this source?
  • Lists IFC as one of the five institutions that constitute the 'World Bank Group'.
  • Distinguishes World Bank (IBRD/IDA) and World Bank Group membership, confirming IFC's institutional placement.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
Presence: 4/5
“• Municipal Bond fixed income instrument, i.e. debt securities issued by the government or semi-government institutions which need funding for civic projects - two types of municipal bonds - General Obligation Bonds and Revenue Bonds.• Masala Bond rupee-denominated bond can be issued by governmental bodies, NBFCs and eligible corporates to raise money from overseas markets - first Masala Bond was issued by International Finance Corporation (IFC) in 2014.”
Why this source?
  • States that the first Masala Bond was issued by the International Finance Corporation (IFC) in 2014, confirming IFC as issuer.
  • Supports the factual link between IFC and 'IFC Masala Bonds', reinforcing the issuer claim in the statement.
Statement 2
Are IFC Masala Bonds rupee-denominated (denominated in Indian rupees)?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > MASALA BOND > p. 266
Presence: 5/5
“The word 'Masala' was used by IFC (arm of World Bank group) to symbolise the culture of India for specifically distinguishing Indian rupee-denominated bonds from other bonds. Similarly, 'Dim Sum Bonds' are used for bonds issued in Hong Kong, denominated in Chinese Renminbi and Komodo Bonds for Indonesia. Issue of Masala Bonds creates demand for rupee and thus helps in preventing depreciation of currency. Masala Bonds cannot be used for investing in capital markets, purchasing land, etc.”
Why this source?
  • Explicitly states IFC used the word 'Masala' to distinguish Indian rupee-denominated bonds.
  • Links the term to rupee-denomination and contrasts with other currency‑named bond types (Dim Sum, Komodo).
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
Presence: 5/5
“• Municipal Bond fixed income instrument, i.e. debt securities issued by the government or semi-government institutions which need funding for civic projects - two types of municipal bonds - General Obligation Bonds and Revenue Bonds.• Masala Bond rupee-denominated bond can be issued by governmental bodies, NBFCs and eligible corporates to raise money from overseas markets - first Masala Bond was issued by International Finance Corporation (IFC) in 2014.”
Why this source?
  • Defines 'Masala Bond' as a rupee-denominated bond that can be issued abroad.
  • Specifically notes the first Masala Bond was issued by the International Finance Corporation (IFC).
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: India’s Foreign Exchange and Foreign Trade > Can Indian Rupee be Internationalised? > p. 500
Presence: 4/5
“Though the percentage share of India in the global trade is on the lower side, the Indian government has been taking measures in the direction of internationalisation of rupee. Convertibility on capital account is also gradually being relaxed which is required for internationalisation. Moreover, issue of rupee-denominated Masala Bonds overseas by International Finance Corporation (an arm of World Bank) is also a step in that direction. Thus, it is a dream not too far.”
Why this source?
  • Describes issuance of rupee-denominated Masala Bonds overseas by IFC as part of rupee internationalisation efforts.
  • Concretely links IFC issuance to rupee-denomination in the context of policy objectives.
Statement 3
Are IFC Masala Bonds used as a source of debt financing for both public-sector and private-sector borrowers?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
Presence: 5/5
“• Municipal Bond fixed income instrument, i.e. debt securities issued by the government or semi-government institutions which need funding for civic projects - two types of municipal bonds - General Obligation Bonds and Revenue Bonds.• Masala Bond rupee-denominated bond can be issued by governmental bodies, NBFCs and eligible corporates to raise money from overseas markets - first Masala Bond was issued by International Finance Corporation (IFC) in 2014.”
Why this source?
  • Explicitly states Masala Bonds can be issued by governmental bodies (public) and NBFCs/eligible corporates (private).
  • Notes these rupee‑denominated bonds are used to raise money from overseas markets.
  • Mentions IFC as the issuer of the first Masala Bond (links IFC to the instrument).
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Debt Instruments > p. 100
Presence: 4/5
“External Commercial Borrowing (ECB): ECBs are commercial loans/debt raised by 'resident' entities from 'non-resident' entities. It can be in foreign currency or Indian rupee denominated. ECBs include bank loans, bonds, debentures, preference shares (other than fully and compulsorily convertible instruments), trade credits, Foreign Currency Convertible Bonds (FCCB), Financial Lease. Masala Bonds are a kind of ECB where the bonds are issued outside India but denominated in Indian Rupees, rather than the local currency. Masala is an Indian word and it means spices. Unlike dollar bonds, where the borrower takes the currency risk, Masala bond makes the investors bear the currency risk. • ECB: $1 Bond was issued to foreign investor; MASALA Bonds: Rs.”
Why this source?
  • Defines Masala Bonds as a kind of External Commercial Borrowing (ECB) — a debt instrument issued outside India but denominated in rupees.
  • Frames Masala Bonds as a mechanism for raising external debt, indicating their role as debt financing instruments.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Govt. of India (Central Govt.) Total Debt/Liabilities = 1 + 2 + 3 + 4 > p. 164
Presence: 4/5
“The Rupee denominated debt is basically FPIs/FIIs purchasing Indian Govt. bonds and Indian companies' bonds in Indian market and Masala bonds raised by Indian companies in abroad market and some NRI deposits in Indian rupees. • Multilateral assistance includes loans from multilateral institutions such as International Bank for Reconstruction and Development (IBRD), International Development Agency (IDA) (IBRD and IDA are together called World Bank), International Fund for Agriculture Development (IFAD), Asian Development Bank (ADB), Organization of Petroleum Exporting Countries (OPEC) etc. Loan from IMF has been included under other govt. debt.• Bilateral assistance includes loans from Japan, Germany, US, France, Russia• Major portion of external debt is denominated in US dollars.”
Why this source?
  • Lists Masala Bonds among rupee‑denominated debt raised by Indian companies abroad, showing private‑sector usage.
  • Places Masala Bonds within the broader category of rupee‑denominated external debt instruments.
Pattern takeaway: UPSC loves 'Fancy Financial Nomenclature' (e.g., P-Notes, Masala Bonds, Green Bonds). The pattern is consistent: Statement 1 usually tests the Institutional Parentage (Who?), and Statement 2 tests the Functional Definition (What/How?). They rarely ask for volatile data like interest rates.
How you should have studied
  1. [THE VERDICT]: Sitter. This was a headline topic for two years and is covered verbatim in standard sources like Nitin Singhania (Ch 9) and Vivek Singh (Ch 2).
  2. [THE CONCEPTUAL TRIGGER]: External Commercial Borrowings (ECB) and the Internationalisation of the Rupee.
  3. [THE HORIZONTAL EXPANSION]: Memorize sibling bonds: Dim Sum (Renminbi in HK), Samurai (Yen in Japan), Yankee (USD in US), Bulldog (GBP in UK). Crucial distinction: In Masala Bonds, the *foreign investor* bears the currency risk, not the Indian borrower.
  4. [THE STRATEGIC METACOGNITION]: When a multilateral body (IFC/ADB) launches a named instrument, map the hierarchy: Parent Body (IFC is World Bank Group) + Mechanism (Offshore vs Onshore). Don't just read the news; link it to the static 'Money Market' chapter.
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 World Bank Group composition (five institutions)
💡 The insight

The core question asks whether IFC is part of the World Bank Group; one reference enumerates the five-member structure including IFC.

High-yield for UPSC: questions often test institutional membership and differences between 'World Bank' and 'World Bank Group'. Mastering this helps answer polity/economy items on multilateral institutions and their mandates. Learn by memorizing the five entities and practicing application-based MCQs.

📚 Reading List :
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 18: International Economic Institutions > Important Facts > p. 523
🔗 Anchor: "Is the International Finance Corporation (IFC), issuer of IFC Masala Bonds, part..."
📌 Adjacent topic to master
S1
👉 Masala Bonds — rupee-denominated external bonds
💡 The insight

The statement centers on 'IFC Masala Bonds'; multiple references define Masala Bonds and link them to IFC issuance.

Important for economy and banking sections: Masala Bonds are a recurring topic in external commercial borrowing and forex risk questions. Understand denomination, currency risk allocation, typical issuers, and policy implications; practice by relating to ECB rules and examples of issuances.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Debt Instruments > p. 100
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > MASALA BOND > p. 266
🔗 Anchor: "Is the International Finance Corporation (IFC), issuer of IFC Masala Bonds, part..."
📌 Adjacent topic to master
S1
👉 IFC's mandate: private-sector focused development finance
💡 The insight

Several references describe IFC's role (private-sector investments, advisory), clarifying why it issues market instruments like Masala Bonds.

Useful for linking institutional purpose to instruments they issue — frequent UPSC theme. Knowing mandates aids in answering questions on development finance, multilateral roles, and instrument choice; study IFC functions alongside IBRD/IDA differences and examples of IFC interventions.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 13: International Organizations > International Finance Corporation (IFC) > p. 400
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 18: International Economic Institutions > International Finance Corporation (IFC) > p. 525
🔗 Anchor: "Is the International Finance Corporation (IFC), issuer of IFC Masala Bonds, part..."
📌 Adjacent topic to master
S2
👉 Masala Bonds = Rupee‑denominated overseas bonds
💡 The insight

The references repeatedly define Masala Bonds as bonds issued overseas that are denominated in Indian rupees.

High‑yield for finance/IR questions: knowing that 'Masala Bonds' refers specifically to rupee‑denominated instruments helps answer questions on external borrowing, currency risk, and capital flows. Connects to topics on external debt composition and bond nomenclature; master by memorising definitions and examples (e.g., IFC issuance).

📚 Reading List :
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > MASALA BOND > p. 266
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
🔗 Anchor: "Are IFC Masala Bonds rupee-denominated (denominated in Indian rupees)?"
📌 Adjacent topic to master
S2
👉 IFC (World Bank arm) as issuer of Masala Bonds
💡 The insight

Several references identify the International Finance Corporation as the first/a key issuer of Masala Bonds.

Useful for questions linking multilateral institutions to instruments and policy objectives; shows how MDBs can support currency internationalisation. Learn by linking institution roles (IFC/World Bank) with concrete instruments and historical examples.

📚 Reading List :
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > MASALA BOND > p. 266
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: India’s Foreign Exchange and Foreign Trade > Can Indian Rupee be Internationalised? > p. 500
🔗 Anchor: "Are IFC Masala Bonds rupee-denominated (denominated in Indian rupees)?"
📌 Adjacent topic to master
S2
👉 Rupee internationalisation & exchange‑rate management via Masala Bonds
💡 The insight

References frame rupee‑denominated Masala Bonds as a policy tool to internationalise the rupee and influence demand for rupees.

Important for GS papers on macroeconomics and foreign exchange: demonstrates a policy lever to reduce depreciation pressure and deepen the rupee internationally. Study by mapping policy goals (internationalisation, FX stability) to specific instruments and their effects on capital flows.

📚 Reading List :
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 17: India’s Foreign Exchange and Foreign Trade > Can Indian Rupee be Internationalised? > p. 500
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Govt. of India (Central Govt.) Total Debt/Liabilities = 1 + 2 + 3 + 4 > p. 164
🔗 Anchor: "Are IFC Masala Bonds rupee-denominated (denominated in Indian rupees)?"
📌 Adjacent topic to master
S3
👉 Masala Bonds — issuers and users
💡 The insight

References state Masala Bonds can be issued by governmental bodies as well as NBFCs and corporates, directly addressing public vs private borrowers.

High‑yield for UPSC: questions often ask about types of external financing and which entities can raise them. Mastering who can issue Masala Bonds helps answer items on external debt, sovereign vs corporate financing, and policy implications. Prepare by memorising issuer categories and typical purposes, and practice applying to MCQs and short‑answer questions.

📚 Reading List :
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 8.28 Indian Economy > p. 284
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > Govt. of India (Central Govt.) Total Debt/Liabilities = 1 + 2 + 3 + 4 > p. 164
🔗 Anchor: "Are IFC Masala Bonds used as a source of debt financing for both public-sector a..."
🌑 The Hidden Trap

The 'Maharaja Bond'. While Masala Bonds are offshore rupee bonds, Maharaja Bonds are rupee-denominated bonds issued by the IFC *within* India (onshore). The next logical question is on 'Green Masala Bonds' (first issued by NTPC) or the 'Blue Bond' (ocean conservation).

⚡ Elimination Cheat Code

Use the 'Inclusive Market' heuristic for Statement 2. Unless a bond is explicitly a 'Sovereign' instrument (like Sovereign Gold Bonds), debt instruments are typically designed for both public and private entities to deepen the market. Restrictive options ('Only public sector') are usually wrong in capital markets.

🔗 Mains Connection

Mains GS-3 (Economy) & GS-2 (IR): Masala bonds are a tool for 'Economic Sovereignty'—they reduce the 'Original Sin' of emerging economies (borrowing in foreign currency) and shield the domestic balance sheet from exchange rate volatility.

✓ Thank you! We'll review this.

SIMILAR QUESTIONS

IAS · 2015 · Q2 Relevance score: -1.73

With reference to the Fourteenth Finance Commission, which of the following statements is/are correct? 1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent. 2. It has made recommendations concerning sector-specific grants. Select the correct answer using the code given below.