[Solved] With reference to the Indian economy, consider the Following statements: A share of the household financial saving goes towards government borrowing. Dated securities issued at market – related rates in auction from a large component of internal debt. Which of the above statements is /are correct?

Q10) With reference to the Indian economy, consider the Following statements:

1. A share of the household financial saving goes towards government borrowing.
2. Dated securities issued at market – related rates in auction from a large component of internal debt.

Which of the above statements is /are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer: 3

· Currency, bank deposits, debt securities, mutual funds, pension funds, insurance, and investments by households in small savings plans are all examples of household financial savings.

· In the fiscal year 2023-24 (FY24), household net financial savings rose slightly to 5.3% of GDP, up from 5.0% in FY23. This modest increase was primarily due to a reduction in household liabilities, despite a rise in gross financial savings to 11.6% of GDP. However, household debt also escalated to 6.4% of GDP, nearing a 17-year high.

· Factors Influencing Savings Patterns:

o Rising Household Debt

o Shift Towards Capital Markets

o Gold Investments

o Financial Times

o Government Tax Reforms

· This money saved goes towards government borrowing in part. The government borrows money by issuing Treasury Bills and G-secs, two types of government securities. It obtains short-term borrowings from the market, small savings accounts, state provident funds, outside funding, and short-term loans.

· Banks, insurance providers, and mutual and provident funds—who, in turn, are significant investors in governmental securities—will be significantly impacted by any negative changes in household savings.

· Current Composition of Internal Debt:

• As of March 2023, dated securities accounted for approximately 77% of India’s total outstanding internal debt, valued at around ₹80.2 lakh crore

· Composition of Internal Debt:

• Market Loans (Dated Securities) ​- 68%

• Treasury Bills – 12%.

• Securities Against Small Savings – 15%.

• Compensation and Other Bonds – 5%

· Statement 1 is Correct – Indian households contribute to government borrowings through investments in various small savings schemes such as the Public Provident Fund (PPF), National Savings Certificates (NSCs), and other similar instruments. These investments are part of the government’s internal borrowing strategy and are reflected in the public accounts of India

· Statement 2 is Correct. The Government of India raises a significant portion of its internal debt through the issuance of dated securities (also known as government bonds) at market-determined interest rates via auctions. These securities constitute a major component of the government’s market borrowings and are pivotal in financing the fiscal deficit.