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Q23 (IAS/2021) Economy › Economy Current Affairs › Capital market developments Official Key

With reference to India, consider the following statements : 1. Retail investors through demat account can invest in 'Treasury Bills' and 'Government of India Debt Bonds' in primary market. 2. The Negotiated Dealing System-Order Matching' is a government securities trading platform of the Reserve Bank of India. 3. The 'Central Depository Services Ltd.' is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange. Which of the statements given above is/are correct?

Result
Your answer: —  ·  Correct: B
Explanation

The correct answer is Option 2 (1 and 2). This is explained by the following points:

  • Statement 1 is correct: Through the RBI Retail Direct Scheme, retail investors can directly open a Gilt Securities Account (demat account) with the RBI to invest in primary issuances of Treasury Bills and Government of India Dated Securities.
  • Statement 2 is correct: The Negotiated Dealing System-Order Matching (NDS-OM) is an anonymous, screen-based electronic order matching system owned by the RBI. it is the secondary market platform for trading in Government Securities.
  • Statement 3 is incorrect: Central Depository Services Ltd (CDSL) was promoted by the Bombay Stock Exchange (BSE) in conjunction with leading banks like SBI, Bank of Baroda, and HDFC Bank. The Reserve Bank of India (RBI) does not promote CDSL; instead, the RBI regulates the banking sector and manages government debt through its own systems.

Since statements 1 and 2 are factually accurate while statement 3 contains an incorrect institutional association, Option 2 is the right choice.

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Q. With reference to India, consider the following statements : 1. Retail investors through demat account can invest in 'Treasury Bills' and…
At a glance
Origin: Mixed / unclear origin Fairness: Moderate fairness Books / CA: 7.5/10 · 0/10

This is a classic 'Market Infrastructure' question mixing current schemes (Retail Direct) with static institutional knowledge. Statements 1 and 2 are standard textbook material (Vivek Singh/Sriram), while Statement 3 tests the 'Who owns whom' framework. The key is distinguishing between the Regulator (RBI) and Market Institutions (Depositories).

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
With reference to India, can retail investors holding demat accounts subscribe to Treasury Bills in the primary market?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Retail Direct Scheme (of RBI): > p. 47
Presence: 5/5
“• Retail individual investors will be able to open a Retail Direct Gilt (RDG) Account with the RBI.• Retail individual investors will be able to purchase Govt. securities in the primary market directly as well as in the secondary market. [But still, they cannot participate in the competitive bidding process].• Retail investors can purchase Central Government Securities (Treasury Bills and Dated Securities), State Govt.”
Why this source?
  • Specifies retail individual investors can open a Retail Direct Gilt (RDG) Account with the RBI.
  • Says retail investors will be able to purchase government securities in the primary market directly as well as in the secondary market.
  • Explicitly lists Central Government Securities including Treasury Bills as purchasable by retail investors; notes a restriction on competitive bidding.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.5 Government Securities > p. 46
Presence: 3/5
“There are four kinds of government securities. • 1. Treasury bills or T-bills: These are short term debt instruments issued by the Government of India for a maturity of less than one year. Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity. For example, a 91-day Treasury bill of ₹100/- (face value) may be issued at say ₹ 98.20, that is, at a discount of say, ₹1.80 and would be redeemed at the face value of ₹100/-. (Treasury bills are traded in money market).• 2.”
Why this source?
  • Defines Treasury Bills as Central Government short-term debt instruments (i.e., government securities).
  • Clarifies the nature of T-bills (zero-coupon, money-market instrument), confirming the instrument type that retail investors can buy via RDG.
Statement 2
With reference to India, can retail investors holding demat accounts subscribe to Government of India dated debt bonds in the primary market?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Retail Direct Scheme (of RBI): > p. 47
Presence: 5/5
“• Retail individual investors will be able to open a Retail Direct Gilt (RDG) Account with the RBI.• Retail individual investors will be able to purchase Govt. securities in the primary market directly as well as in the secondary market. [But still, they cannot participate in the competitive bidding process].• Retail investors can purchase Central Government Securities (Treasury Bills and Dated Securities), State Govt.”
Why this source?
  • Names the Retail Direct Gilt (RDG) account for retail individual investors to open with the RBI.
  • Explicitly states retail individual investors will be able to purchase Government securities in the primary market directly.
  • Notes a procedural limitation (cannot participate in competitive bidding), clarifying mode of participation.
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
Presence: 3/5
“• 1. Internal Debt[it is basically what Govt. of India borrows by issuing Debt Securities like Treasury Bills and Dated Securities in the domestic market. It is also called Domestic Market Borrowings]• 2. External Debt [It is basically borrowing from other Governments (bilateral debt) and Multilateral Agencies like World Bank, ADB etc. and FPI purchasing G-Secs]• 3. Public Account Liability [It includes National Small Savings Schemes like Public Provident Fund, Kisan Vikas Patra etc.]• 4. Off budget liabilities [Such financial liabilities of any corporate or other entity owned/controlled by the Central Government, which the Govt. has to repay or service from the Annual Financial Statement.] Internal Debt and external debt combined together is also called Public Debt (of Govt. of India) and it is contracted (on the security of) against the Consolidated Fund of India. • Components of Central Govt.”
Why this source?
  • Defines Internal Debt as what the Government borrows by issuing Treasury Bills and Dated Securities in the domestic market.
  • Establishes that the Government issues dated securities domestically, creating the instruments retail investors can access.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 50
Presence: 3/5
“In this market transaction is between the issuer (company) of security and the investor. In the securities example earlier, the market in which the company issued bonds for the first time to one lakh investors is the primary market.• (ii) Secondary Market: Once the securities have been issued by the issuer in the primary market, it gets traded in the secondary market among the investors. In this market, investors trade the previously issued securities among themselves without the involvement of the issuer of security (company). Example, Bombay Stock Exchange. In the securities example, the market in which the investors started buying and selling the bonds among themselves is a secondary market.• 2.”
Why this source?
  • Explains the primary market as the market where an issuer sells securities for the first time to investors.
  • Clarifies that purchasing in the primary market is a direct transaction between issuer and investor, framing how retail investors buy new issues.
Statement 3
With reference to India, is the Negotiated Dealing System-Order Matching (NDS-OM) the Reserve Bank of India's government securities trading platform?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.5 Government Securities > p. 46
Presence: 5/5
“• G-Secs are issued through auctions conducted by RBI. Auctions are conducted on the electronic platform called the E-Kuber, the Core Banking Solution (CBS) platform of RBI. So, basically e-Kuber is a platform where primary market transaction happens.• Commercial banks, scheduled UCBs, Primary Dealers, insurance companies and provident funds, who maintain funds account (current account) and securities accounts with RBI, are members of this electronic platform. All members of E-Kuber can place their bids in the auction through this electronic platform.• There is an active secondary market in G-Secs and Negotiated Dealing System-Order Matching (NDS-OM) is such a market/platform. Stock exchanges are also a secondary market for government securities.”
Why this source?
  • Explicitly names Negotiated Dealing System-Order Matching (NDS-OM) as a market/platform for government securities (secondary market).
  • Distinguishes primary-market platform (e-Kuber) from secondary-market platforms, placing NDS-OM in the secondary trading segment.
  • Mentions stock exchanges alongside NDS-OM as secondary market venues, reinforcing NDS-OM's role as a trading platform for G-Secs.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 3. Regulation of Foreign Exchange Market, Govt. Securities Market and Money Market > p. 68
Presence: 3/5
“Government securities market, which trades securities issued by the Central and State Governments are regulated by the RBI for which RBI derives its powers from the RBI Act 1934. Money Market (explained in financial markets topic), which trades short term and highly liquid debt securities are also regulated by the RBI for which RBI derives its powers from the RBI Act 1934.”
Why this source?
  • States that the government securities market is regulated by the Reserve Bank of India, linking RBI to oversight of platforms used for trading G-Secs.
  • Provides institutional context that RBI has statutory authority over the market where NDS-OM operates.
Statement 4
With reference to India, was Central Depository Services (India) Limited (CDSL) jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange?
Origin: Weak / unclear Fairness: Borderline / guessy
Indirect textbook clues
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > IMPORTANT TERMS RELATED TO STOCK MARKET > p. 277
Strength: 5/5
“• Col1: Demat Account; In India there are two depositories - NSDL (National Securities Depository Limited) and CDSL (Central Depositories Services Limited) which came into existence as a result of the Depository Act of 1996. A depository operates through its agents called Depository Participants (DPs). They are regulated by SEBI and facilitate securities trade by maintaining demat account of traders and providing other trading services”
Why relevant

States that two depositories in India are NSDL and CDSL and that they came into existence as a result of the Depositories Act of 1996 and are regulated by SEBI.

How to extend

A student could use this to infer that CDSL’s promoters are likely players in the securities market (e.g., stock exchanges or other market institutions) and then check which institutions commonly promoted depositories after the 1996 Act.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > RESERVE BANK OF INDIA > p. 161
Strength: 3/5
“• The RBI was set up on the basis of the recommendations of Hilton Young Commission. • RBI was established in 1935 in accordance with the RBI Act, 1934, and is India's central banking institution. It started its operations on 1 April 1935 during the British rule as per the provisions of the RBI Act, 1934. • RBI started as a shareholder's company (i.e., privately owned) but it became nationalised.”
Why relevant

Describes the Reserve Bank of India as a distinct central banking institution with a historic role and changing ownership (shareholder company then nationalised).

How to extend

A student could combine this with knowledge of typical roles of central banks versus market infrastructure promoters to judge plausibility of RBI being a promoter of a securities depository and then verify whether RBI in fact promoted CDSL.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.14 RBI and its Functions > p. 65
Strength: 3/5
“The Reserve Bank of India is the central bank of the country. Central banks are a relatively recent innovation and most central banks, as we know them today, were established around the early twentieth century. The Reserve Bank of India was set up on the basis of the recommendations of the Hilton Young Commission. The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Bank, which commenced operations on April 1, 1935. The Bank began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt.”
Why relevant

Explains RBI’s identity as India’s central bank and its institutional origins (Hilton Young Commission, RBI Act 1934).

How to extend

A student could use this to contrast the RBI’s core mandates with entities that normally promote depositories (stock exchanges, broker groups) and then look up CDSL’s promoter list to test the statement.

Pattern takeaway: UPSC frequently tests 'Institutional Parentage'. They will claim a Regulator (RBI/SEBI) is the Promoter of a commercial entity to create a 'Conflict of Interest' trap. If a statement says 'RBI promotes [Stock Market Entity],' be highly skeptical.
How you should have studied
  1. [THE VERDICT]: Manageable. Statements 1 & 2 are covered in standard Economy texts (e.g., Vivek Singh Ch. 2). Statement 3 is the elimination key.
  2. [THE CONCEPTUAL TRIGGER]: Financial Markets > Government Securities Market > Market Infrastructure (Platforms & Depositories).
  3. [THE HORIZONTAL EXPANSION]: Memorize the pairs: NSDL (Promoted by NSE/IDBI/UTI) vs. CDSL (Promoted by BSE/Banks). Contrast Platforms: e-Kuber (Primary Market/Auctions) vs. NDS-OM (Secondary Market/Trading). Know the Regulator map: SEBI regulates Depositories; RBI regulates G-Sec trading.
  4. [THE STRATEGIC METACOGNITION]: When studying any financial institution (NPCI, CCIL, NSDL, CDSL), always ask three questions: 1. Who regulates it? 2. Who promoted/owns it? 3. What is its specific function? UPSC loves swapping the 'Promoter' with the 'Regulator'.
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Retail Direct Scheme / Retail Direct Gilt (RDG) Account
💡 The insight

RDG Account is the RBI facility that enables retail investors to buy government securities in the primary and secondary markets.

High-yield for public finance and banking questions: explains how retail households directly access government securities, links RBI retail access reforms to government borrowing and market participation; useful for questions on market access reforms and investor channels.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Retail Direct Scheme (of RBI): > p. 47
🔗 Anchor: "With reference to India, can retail investors holding demat accounts subscribe t..."
📌 Adjacent topic to master
S1
👉 Nature of Treasury Bills (T-Bills)
💡 The insight

T-Bills are short-term Central Government securities and the specific instrument retail investors gain access to through RDG.

Core money-market concept: knowing T-Bills' zero-coupon, short-maturity character helps answer questions on government debt instruments, liquidity management, and RBI operations; integrates with topics on money market instruments and fiscal operations.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.5 Government Securities > p. 46
🔗 Anchor: "With reference to India, can retail investors holding demat accounts subscribe t..."
📌 Adjacent topic to master
S1
👉 Competitive vs Non-Competitive Routes in G-Sec Auctions
💡 The insight

Retail investors can buy T-Bills via RDG but are not allowed to participate in competitive bidding, implying use of non-competitive/direct channels.

Important for questions on auction mechanisms and investor categories: distinguishes market access methods for different investor classes and explains how retail participation is structured without competitive bidding; aids in interpreting policy changes and auction access rules.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Retail Direct Scheme (of RBI): > p. 47
🔗 Anchor: "With reference to India, can retail investors holding demat accounts subscribe t..."
📌 Adjacent topic to master
S2
👉 Retail Direct Gilt (RDG) Account
💡 The insight

RDG is the specific facility that enables retail individuals to buy government securities directly from the RBI.

High-yield for UPSC because it links government debt markets with retail participation and recent reforms; it connects to public finance, RBI operations, and retail investor policy. Questions can ask about mechanisms enabling direct retail access to sovereign bonds and their policy implications.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Retail Direct Scheme (of RBI): > p. 47
🔗 Anchor: "With reference to India, can retail investors holding demat accounts subscribe t..."
📌 Adjacent topic to master
S2
👉 Primary Market vs Secondary Market
💡 The insight

Primary market is where new government securities are issued and can be subscribed to by investors directly from the issuer.

Important for understanding how government borrowing is raised versus how securities are traded later; it connects to fiscal deficit financing, bond market development, and investor access rules. Mastery helps answer questions on issuance mechanism, investor categories, and market structure.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 50
  • Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > CAPITAL MARKET > p. 262
🔗 Anchor: "With reference to India, can retail investors holding demat accounts subscribe t..."
📌 Adjacent topic to master
S2
👉 Government Internal Debt: Treasury Bills and Dated Securities
💡 The insight

Treasury Bills and Dated Securities are the debt instruments the Government issues domestically that retail investors may subscribe to.

Core to public finance and debt management topics in UPSC; it links to budgetary financing, RBI's role, and investor instruments. Understanding these instruments enables analysis of borrowing mix, market accessibility, and implications for interest rates.

📚 Reading List :
  • 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 2: Money and Banking- Part I > Retail Direct Scheme (of RBI): > p. 47
🔗 Anchor: "With reference to India, can retail investors holding demat accounts subscribe t..."
📌 Adjacent topic to master
S3
👉 NDS-OM as a secondary-market trading platform
💡 The insight

NDS-OM is described specifically as a market/platform used for trading government securities in the secondary market.

High-yield for questions on market infrastructure: distinguishes where government securities are traded after issuance, helps answer queries on trading venues and market functioning; links to topics on liquidity, price discovery, and participants in debt markets.

📚 Reading List :
  • Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.5 Government Securities > p. 46
🔗 Anchor: "With reference to India, is the Negotiated Dealing System-Order Matching (NDS-OM..."
🌑 The Hidden Trap

The Clearing Corporation of India Ltd (CCIL). It clears G-Sec and Forex trades. Who promotes it? Not RBI directly, but a consortium of Banks (SBI, IDBI, ICICI, etc.). RBI regulates it under the PSS Act. Expect a question swapping CCIL's promoter with RBI.

⚡ Elimination Cheat Code

Apply the 'Regulator vs. Promoter' logic. RBI is a central bank/regulator. CDSL is a depository regulated by SEBI. It is institutionally inconsistent for RBI to 'jointly promote' a private entity regulated by a peer regulator (SEBI). Furthermore, historically, RBI divested ownership in institutions (like SBI, NABARD, NHB) to avoid conflicts. Statement 3 is likely false.

🔗 Mains Connection

GS-3: Mobilization of Resources. The 'Retail Direct Scheme' (Statement 1) is a structural reform to deepen the Corporate Bond Market and democratize fiscal deficit financing, moving reliance away from captive banks (SLR) to household savings.

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