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Q100 (IAS/2022) Economy › Government Finance & Budget › Government debt management Official Key

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?

Result
Your answer: —  ·  Correct: C
Explanation

The correct answer is Option 3 (Both 1 and 2).

Statement 1 is correct: Household financial savings are a primary source of funds for government borrowing. A significant portion of these savings is channeled through instruments like Public Provident Funds (PPF), National Savings Certificates, and life insurance premiums. These funds constitute "Small Savings," which are utilized by the government to finance the fiscal deficit. Additionally, banks use household deposits to purchase government securities to maintain their Statutory Liquidity Ratio (SLR).

Statement 2 is correct: Internal debt constitutes the bulk of India's public debt. Within internal debt, Marketable Securities (dated securities and treasury bills) issued through auctions at market-determined interest rates are the largest component. The government has transitioned from ad-hoc treasury bills to market-linked borrowings to ensure transparency and fiscal discipline.

Since both statements accurately describe the mechanisms of the Indian debt market and fiscal financing, Option 3 is the right choice.

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Q. With reference to the Indian economy, consider the following statements: 1. A share of the household financial savings goes towards gove…
At a glance
Origin: From standard books Fairness: High fairness Books / CA: 10/10 · 0/10
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This is a textbook 'Public Finance' question. It rewards conceptual clarity over current affairs rote learning. If you understand the flow of funds (Households → Banks/Post Office → Govt) and the composition of the Union Budget, this is a sitter. No obscure reports needed; just standard NCERT/Vivek Singh logic.

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
Do household financial savings in India flow into government borrowings through investments in government securities and similar instruments?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > 1. Debt Creating Capital Receipts > p. 105
Presence: 5/5
“• Loan taken by the Central Government from foreign Governments (external debt), or public financial institutions, etc. are included under capital receipts.• Borrowings from the market by sale of Government securities (G-Secs) through RBI also results in capital receipts.• GOI under National Small Savings Fund (NSSF) raises money from the public through Ø small saving schemes like postal deposits, National Small Savings Certificate, Kisan Vikas Patra, etc.”
Why this source?
  • Explicitly notes GOI raises money from the public via National Small Savings Fund (NSSF) and small saving schemes (postal deposits, NSC, Kisan Vikas Patra).
  • States borrowings from the market by sale of Government securities (G‑Secs) through RBI result in capital receipts (i.e., funds raised).
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: 5/5
“• 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 domestic borrowing via debt securities like Treasury Bills and Dated Securities.
  • Lists National Small Savings Schemes under Public Account Liability, linking household small savings instruments to government liabilities.
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 2: National Income Accounting > NNP ≡ GNP – Depreciation > p. 26
Presence: 4/5
“On the other hand, the households do receive interest payments from private firms or the government on past loans advanced by them. And households may have to pay interests to the firms and the government as well, in case they had borrowed money from either. So, we have to deduct the net interests paid by the households to the firms and government. The households receive transfer payments from government and firms (pensions, scholarship, prizes, for example) which have to be added to calculate the Personal Income of the households. Thus, Personal Income (PI) ≡ NI – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms.”
Why this source?
  • States households receive interest payments from the government on past loans advanced by them, implying households lend to the government.
  • Frames household net interest flows with government as part of personal income accounting, indicating a lending–borrowing relationship.
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