1. A share of the household’s 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 

Ans: c

Explanation: 

The fiscal deficit indicates the total borrowing requirements of the government from all sources. Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad. 

Net borrowing at home includes that directly borrowed from the public through debt instruments (for example, the various small savings schemes) and indirectly from commercial banks (People deposits their savings with commercial bank) through Statutory Liquidity Ratio (SLR).  

The Central Government Debt includes all liabilities of Central Government contracted against the Consolidated Fund of India (defined as Public Debt), other liabilities in the Public Account, (called Other Liabilities) and liabilities of Extra Budgetary Resources (EBR) raised by issuing GoI Fully Serviced Bonds. 

Public debt is further classified into internal and external debt. 

Internal debt consists of marketable debt and non-marketable debt. 

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

Non-marketable debt comprises of Intermediate Treasury Bills (14 days ITBs) issued to State Governments/UTs of Jammu & Kashmir and Puducherry as well as select Central Banks, special securities issued against small savings, special securities issued to public sector banks/EXIM Bank, IDBI and IIFCL, special securities issued against POLIF (Postal life insurance), securities issued to international financial institutions, and compensation and other bonds, Ways and Means advance.

External debt is the money that a country borrows from a source external to it and has to be repaid in the currency in which it was borrowed after a certain period of time. Most of the time such money is borrowed from foreign institutions like foreign commercial banks and international financial institutions such as the International Monetary Fund (IMF), World Bank, Asian Development Bank (ADB) and also from the governments of foreign nations. Majority of India’s external debt comes from multilateral institutions.

Other liabilities include liabilities on account of State Provident Funds, Reserve Funds and Deposits, Other Accounts, etc.

• Of the Central Government total gross liabilities at end-March 2022, 95.3 per cent were denominated in domestic currency while sovereign external debt constituted 4.7 per cent, implying low currency risk.Further, the sovereign external debt is mainly from official sources, which minimises the risk associated with the volatility in the international capital markets. 
• The share of marketable securities in internal debt at 76.9 per cent at end-March 2022.
• Public debt in India is primarily contracted at fixed interest rates, with floating internal debt constituting only 1.9 per cent of GDP at end-March 2022. The debt portfolio is, therefore, insulated from interest rate volatility, which also provides stability to interest payments.
• Of the overall Central Government debt, about 92 per cent is internal debt and 8 per cent is external debt. The internal debt largely consists of market loans in the form of dated securities which are contracted through auction.

Hence, both statements 1 & 2 are correct.

Read: Solved Economy PYQs With Explanation 2022 UPSC Prelims