Security Market in India: UPSC Previous Year Questions (Indian Economy)

Explanation

Statements 1 and 2 are correct: Inflation-Indexed Bonds is a debt market securities offered by the government to protect the savings from inflation and offer positive real rates of returns. Since Inflation-Indexed Bonds (IIBs) provide inflation protection to investors, the government can offer these bonds with lower coupon rates compared to traditional bonds. The inflation adjustment compensates for the lower fixed interest.

Statement 3 is incorrect: The existing tax provisions will be applicable on interest payment and capital gains on IIBs. There will be no special tax treatment for these bonds.

Explanation

The real sector refers to the segment of the economy that is involved in the production and consumption of tangible goods and services. It includes industries such as agriculture, manufacturing, construction, mining, and services like health-care, education, and transportation. Statements 1 and 2 are correct:

Farmers harvesting their crops: This is a primary sector activity directly contributing to the production of goods (agricultural produce). Textile mills converting raw cotton into fabrics: This is a manufacturing activity, part of the secondary sector, which also belongs to the real sector. Statements 3 and 4 are incorrect:

A commercial bank lending money to a trading company:

This is a financial sector activity, involving monetary transactions rather than the production of tangible goods or services. A corporate body issuing Rupee Denominated Bonds overseas: This relates to the financial sector and capital markets, as it involves raising funds rather than producing goods or services.