Public Finance: UPSC Previous Year Questions (Indian Economy)

Explanation

Statement 1 is correct: When a company uses its funds to acquire or upgrade physical assets, it is called Capital Expenditure (CapEx). These assets can include property, plants, buildings, technology, or equipment. CapEx is intended to provide long-term benefits to the organization.

Statement 2 is incorrect: When a company borrows money to be paid back at a future date with interestit is known as debt financing. It is not a capital expenditure. Equity financingis the process of raising capital through the sale of shares.It is an example of non-debt capital receipts, not revenue expenditure.

Explanation

Statement 1 is correct: In India, people save through various financial options, including bank deposits, pension funds, insurance schemes, and government securities. Some of these savings are invested in government bonds and securities, helping the government fund its expenditures and manage its budget shortfall. Thus a portion of household financial savings is used to support government borrowing.

Statement 2 is correct: The Indian government raises money by issuing dated securities, which are long-term bonds with a fixed maturity date. Their interest rates are decided by market demand and supply. The government sells these securities through auctions, where banks, financial institutions, and investors place bids. These bonds make up a large part of the government’s internal debt, which is the money it owes to lenders with-in the country. The share of marketable securities in internal debt is at 76.4 per cent at end-March 2023 which is slightly moderate relative to 76.9 per cent at end-March 2022. The share of dated securities in public debt stood at 66.3 per cent at end-March 2023.

Outstanding Marketable Dated Securities (₹ crore, actuals at end-March)