Question map
In the context of the Indian economy, non-financial debt includes which of the following ? 1. Housing loans owed by households 2. Amounts outstanding on credit cards 3. Treasury bills Select the correct answer using the code given below :
Explanation
The correct answer is Option 4 (1, 2 and 3). In economics, non-financial debt refers to credit instruments issued by entities that are not financial intermediaries. This category encompasses debt incurred by households, non-financial corporations, and the government.
- Housing loans (1) and Credit card outstandings (2): These represent consumer credit and mortgage debt owed by the household sector. Since households are non-financial entities, their borrowings are classified as non-financial debt.
- Treasury bills (3): These are short-term debt instruments issued by the Government to meet fiscal requirements. The government is a non-financial borrower; hence, sovereign debt (T-bills, G-Secs) is a core component of non-financial debt.
Conversely, financial debt refers to the internal borrowing within the financial sector (e.g., banks borrowing from each other). Since all three items listed involve borrowing by the government and households, they collectively constitute non-financial debt.
PROVENANCE & STUDY PATTERN
Full viewThis is a classic 'Definition Application' question. It doesn't require memorizing a list from a book, but understanding the core macroeconomic definition of 'Non-Financial Sector' (Households + Govt + Corporates). If the borrower isn't a bank/intermediary, their debt is non-financial.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: Are housing loans owed by households included in nonāfinancial debt in the Indian economy?
- Statement 2: Are amounts outstanding on credit cards included in nonāfinancial debt in the Indian economy?
- Statement 3: Are Treasury bills included in nonāfinancial debt in the Indian economy?
- Defines financial debt to include borrowing by households, implying household loans (like housing) are financial rather than nonāfinancial.
- Directly links households to the category of financial debt rather than nonāfinancial debt.
- Specifically lists housing as an expense financed by money borrowed by individuals or families, placing housing loans under the described debt type.
- Shows household borrowing for housing is treated as the consumer/household debt discussed in the articleās financialādebt section.
- Explains the distinction: financial debt involves borrowing within the financial system, while nonāfinancial debt involves entities not primarily engaged in financial services.
- This distinction supports that household housing loans (from financial institutions) belong to financial debt, not nonāfinancial debt.
This snippet lists a multipleāchoice question that pairs 'Housing loans owed by households' and 'Amounts outstanding on credit cards' as candidate components of 'nonāfinancial debt', implying these household liabilities are treated as debt categories in that context.
A student could take this framing and check standard sectoral debt definitions (household vs government) to see if household loans are classified under nonāfinancial/private debt rather than government debt.
States that 'Nonāgovernment debt is generally much higher than the government debt', indicating a distinction between government/public debt and other (private/household) debt aggregates.
Combine this with knowledge that housing loans are large household liabilities to infer they likely make up part of the nonāgovernment (nonāfinancial/private) debt stock.
Defines components of central government debt (internal, external, public account, offābudget), clarifying that government/public debt is a separate category from other debts.
Use this rule of separation to reason that loans not listed as government liabilities (e.g., household housing loans) would belong to nonāgovernment/nonāfinancial debt aggregates.
Explains various sources and types of loans to households (formal vs informal) and that formal loans are provided by banks/cooperatives, highlighting the existence of household borrowing separate from government borrowing.
A student could map these household loan sources (bank mortgages) to national accounts/sectoral debt statistics to argue these household liabilities are counted under private or nonāfinancial debt.
Describes microfinance loans to households and defines household as a distinct unit for lending, reinforcing that household liabilities are a recognized class in credit statistics.
Extend by comparing household liability classes (microloans, mortgages) with national debt categories to infer which aggregate (nonāfinancial/private debt) would include them.
Defines a credit card as a plastic card issued by banks that enables payment based on the cardholder's promise to pay the card issuer.
A student could infer that creditācard balances are claims/loans connected to banks (financial institutions) and therefore likely count as financialāsector or household financial liabilities rather than 'nonāfinancial' debt.
States regulatory distinctions about Payments Banks (they cannot undertake lending and cannot issue credit cards), implying creditācard issuance is an activity of lending banks/financial intermediaries.
Use this to argue creditācard balances are produced by lending activities of regulated financial intermediaries, suggesting classification as financial debt rather than nonāfinancial debt.
Explains components of government debt (internal, external, public account, offābudget) and distinguishes public/sovereign debt from other debt types.
A student could use this pattern to separate government/public debt from other debts (e.g., household or corporate creditācard liabilities) and thus question whether creditācard amounts fit 'nonāfinancial debt' categories in official statistics.
Notes that nonāgovernment debt is generally much higher than government debt and lists components of external debt (ECBs, NRI deposits, currency composition).
Combine with the fact that credit cards are bankāissued to hypothesize creditācard balances are part of the larger nonāgovernment (financial/nonāfinancial) debt pool, prompting a check of whether they are classified under household/financialāsector liabilities rather than 'nonāfinancial debt'.
Defines India's external debt as total debt owed to foreign creditors by government, states, corporations or citizens, and lists debtors including corporations and citizens.
A student could extend this by noting that classifications distinguish debtor sectors (government, corporate, household); since creditācard balances are household/corporate obligations to banks, one would expect them to be classified by debtor sector and as financial liabilities, not as 'nonāfinancial' debt of the economy.
- Directly states treasury bills are part of non-financial debt.
- Provides treasury bills alongside other non-financial debt examples (commercial loans, industrial loans), tying the instrument to that category.
Defines Treasury bills as a type of government security (shortāterm, zeroācoupon) issued by the Government of India.
A student could combine this with definitions of government debt/nonāfinancial debt to see whether government securities are normally counted as debt of the public sector.
States that Internal Debt consists of what the Government of India borrows by issuing debt securities like Treasury Bills and Dated Securities (i.e., domestic market borrowings).
One could use standard classifications (government vs nonāfinancial sector debt) to judge whether government internal debt instruments like Tābills appear in nonāfinancial debt aggregates or in publicāsector debt aggregates.
Explains fiscal deficit is financed by domestic borrowing which 'includes government's debt securities like Treasury Bills and Dated Securities'.
Using national accounts concepts, a student can check if fiscal (government) borrowing items are recorded under government/public debt rather than private nonāfinancial sector debt.
Notes fiscal deficit is financed through market borrowings using instruments such as GāSecs and Treasury Bills.
A student could contrast 'market borrowings by government' with typical components of nonāfinancial corporate/household debt to see if Tābills logically belong to nonāfinancial debt aggregates.
- [THE VERDICT]: Conceptual Sitter. Solvable by logic, not rote learning. Source: Economic Survey / RBI Financial Stability Reports.
- [THE CONCEPTUAL TRIGGER]: Macroeconomic Aggregates & System of National Accounts (SNA). Specifically, the distinction between the 'Financial Sector' (Intermediaries) and the 'Real Sector' (Households, Firms, Govt).
- [THE HORIZONTAL EXPANSION]: Memorize the Borrower Classification: 1. Financial Debt: Call Money, Certificate of Deposits (issued by banks), Bonds issued by NBFCs. 2. Non-Financial Debt: G-Secs/T-Bills (Govt), Corporate Bonds (Firms), Mortgages/Credit Cards (Households), Commercial Paper (Corporates).
- [THE STRATEGIC METACOGNITION]: Stop memorizing instrument lists. Instead, apply the 'Who is the Borrower?' test. If the entity borrows to consume or invest in real assets (Govt, Household, Factory), it is Non-Financial Debt. If they borrow to lend (Bank), it is Financial Debt.
Distinguishing internal (domestic market borrowings) from external debt is central to any classification of the economy's debt stock.
High-yield for UPSC because questions often ask about composition of public debt, balance between domestic and external borrowings, and implications for fiscal risk. Links to fiscal policy, balance of payments, and sovereign debt sustainability questions; enables answering items on debt composition and sources of financing.
- 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. 162
- 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. 163
Knowing whether household loans come from formal institutions (banks, cooperatives) or informal lenders affects how household liabilities are recorded and monitored.
Important for questions on credit penetration, financial inclusion, and measurement of household indebtedness; connects to banking regulation, rural credit policy and RBI supervision topics. Helps evaluate policy measures and interpret statistics on household debt.
- Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > FORMAL SECTOR CREDIT IN INDIA > p. 47
Clear definitions of microfinance and household loans identify which small household borrowings are captured in formal credit aggregates.
Useful for questions on poverty alleviation, financial inclusion and classification of small loans in national statistics; connects to NBFC regulation, targeted credit schemes, and measurement of lowāincome household indebtedness.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 18. Non-Banking Financial Companies (NBFCs): > p. 85
Credit cards are bankāissued instruments that create a cardholder promise to pay, so outstanding balances are a form of consumer/household credit that must be classified when compiling debt statistics.
High-yield: clarifies the nature of household liabilities relevant for national accounts and monetary statistics; links money-and-banking topics to household finance and debt composition questions; enables candidates to reason about whether a liability is financial, shortāterm, or household in classification problems.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Credit Card > p. 195
Indiaās debt is categorized into internal (domestic) debt, external debt, public account liabilities and offābudget liabilities, so placing any debt item requires knowing these primary buckets.
High-yield: mastering these categories helps answer public finance and macroeconomics questions on which instruments or liabilities fall under government/public debt vs external debt or private debt; useful for questions on debt statistics, government borrowing and balanceāofāpayments implications.
- 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. 162
- 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. 163
Trade credit involves importers deferring payment to overseas suppliers or banks and is treated alongside other external borrowing, illustrating how nonābank credit can enter external debt tallies.
High-yield: helps distinguish types of external liabilities in the balance of payments and external debt data; prepares candidates to spot when tradeārelated payables count as external debt rather than purely domestic liabilities.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > 3. Trade Credit > p. 480
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > IRVE > p. 487
Treasury bills are zeroācoupon, shortāterm debt instruments issued by the Government of India and traded in the money market.
Highāyield for questions on money markets and government borrowing: explains instrument characteristics, maturity profile, and role in liquidity management. Connects to topics on monetary policy operations, shortāterm interest rates, and market instruments frequently asked in prelims and mains.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.5 Government Securities > p. 46
The 'Credit-to-GDP Gap'. Since UPSC asked about the components of debt, the next logical step is the metric used to measure systemic risk. Also, look out for 'Household Financial Savings' components (Currency, Deposits, Shares) vs 'Physical Savings' (Real Estate).
The 'Odd One Out' Logic: Ask yourself, 'Is the borrower a Bank?'
1. Households (Housing) -> Not a Bank.
2. Households (Credit Card) -> Not a Bank.
3. Govt (T-Bills) -> Not a Bank.
Since none are banks, all belong to the same category (Non-Financial). Select All.
Mains GS3 (Economic Stability): High 'Non-Financial Corporate Debt' was the root of the Twin Balance Sheet problem (2014-2017). High 'Household Debt' (Credit cards/Housing) drives consumption but risks a 2008-style crisis if incomes stagnate.