What is Household financial savings and Public Debt UPSC pre 2022

This question was directly taken from Economic survey.

 

It can be categorized as a medium-level question because the economic survey is an important source for the Economy related questions but still remembering all the detail of the economic survey is difficult.

 

 

Concept Discussed

 

Household financial savings

 

Public debt.

 

Dated securities and

 

In the end, I would discuss a rare question of UPSC.

 

 

Statement 1- A share of the household's financial savings goes towards government borrowings.

 

 

What is Household financial savings?

 

It refers to currency, bank deposits, debt securities, mutual funds, pension funds, insurance, and investments in small savings schemes by households.

 

 

As the government borrows through the issue of government securities called G-secs and Treasury Bills.

 

Banks, insurance companies, and mutual funds are key investors in government securities. 

Hence statement 1 is correct.

 

Statement 2 - Dated securities issued at market-related rates in auctions form a large component of internal debt.

 

What is Public Debt or Government Debt?[Indirectly Asked in 2013, 2015, 2021]

 

The Central Government Debt includes all liabilities of the Central Government contracted against the Consolidated Fund of India (defined as Public Debt).

 

Public debt is further classified into internal and external debt.

 

Internal debt consists of

marketable debt and

non-marketable debt[not traded on any secondary market exchange].

 

A non-marketable security is an asset that is difficult to buy or sell due to the fact that they are not traded on any major secondary market exchanges.

 

What is Marketable debt [i.e. Dated securities]?

 

Marketable debt comprises Government dated securities and Treasury Bills, issued through auctions.

 

All marketable securities and Treasury bills are issued through auctions as per the schedule notified through half-yearly/quarterly auction calendars.

 

In March 2021, dated securities accounted for more than two-thirds of the total Public Debt.

 

Hence statement 2 is correct.

 

For revision let's discuss the question

 

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?

(a)  1 only

(b)  2 only

(c)  Both 1 and 2

(d)  Neither 1 nor 2

 

 

Solution

Both statements are correct as per the economic survey.

 

 

Now a rare question.

 

Which one of the following is likely to be the most inflationary in its effect?

(Asked in UPSC-Pre-2013, 2021)

(a) Repayment of public debt

(b) Borrowing from the public to finance a budget deficit

(c) Borrowing from banks to finance a budget deficit

(d) Creating new money to finance a budget deficit

 

It was a rare question because UPSC usually repeats concept but rarely repeat a question.

 

In Inflation, RBI will try to decrease the money supply in options B and D money supply will decrease but the word MOST is used so D is correct because in these new money will be created.