Q. 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?

  • 1 only
  • 2 only
  • Both 1 and 2
  • Neither 1 nor 2

Answer: (c) Both 1 and 2

Notes:
  • Household financial savings refer to currency, bank deposits, debt securities, mutual funds, pension funds, insurance, and investments in small savings schemes. A share of these savings goes towards government borrowings, which forms a part of the government’s internal debt.
    • Deposits with banks are the single largest form of households’ financial assets, followed by insurance funds, mutual funds and currency. Therefore, any adverse movement in the household savings will have a significant bearing on banks, insurance companies and mutual/provident funds, who, in turn, are key investors in government securities.
  • Dated securities are issued at market-related rates in auctions and form a large component of internal debt. The Central Government Debt includes all liabilities of the Central Government contracted against the Consolidated Fund of India, which is classified into internal and external debt. Marketable debt, such as Government dated securities and Treasury Bills, is issued through auctions.
  • India’s public debt profile is relatively stable and is characterised by low currency and interest rate risks. Of the Union Government’s total net liabilities in end-March 2021, 95.1% were denominated in domestic currency, while sovereign external debt constituted 4.9%, implying low currency risk.