Q. 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 :

Answer: (d) 1, 2 and 3

Debts are contractual obligations to repay monetary loans, often with related interest expenses.
Financial debt refers to the borrowing of money from financial institutions, such as banks or bondholders, with the aim of raising capital to finance business activities.
- Financial debt typically involves the payment of interest and principal over a specific period, with the expectation that the borrower will generate sufficient cash flows to cover the payments.
- Examples of financial debt include loans, bonds, and other forms of debt securities.
On the other hand, non-financial debt refers to debts that arise from non-financial transactions, such as trade credit, deferred payments, and leasing arrangements. Non-financial debt is typically used to finance purchases of goods and services, rather than to raise capital for business activities. Non-financial debt may or may not involve the payment of interest and principal over a specific period, depending on the terms of the transaction.
- It consists of credit instruments issued by governmental entities, households and businesses that are not included in the financial sector.
- It includes industrial or commercial loans, Treasury bills and credit card balances.
- They share most of the same characteristics with financial debt, except the issuers are non-financial.