Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
What are govt securities?
A government security (G-Sec) is a tradeable instrument issued by the central government or state governments.
- It acknowledges the government’s debt obligations.
- Such securities can be both short term (treasury bills — with original maturities of less than one year) or long term (government bonds or dated securities — with original maturity of one year or more).
- The central government issues both: treasury bills and bonds or dated securities.
- State governments issue only bonds or dated securities, which are called the state development loans.
- Since they are issued by the government, they carry no risk of default, and hence, are called risk-free gilt-edged instruments.
- FPIs are allowed to participate in the G-Secs market within the quantitative limits prescribed from time to time.
Why are G-secs volatile?
G- Sec prices fluctuate sharply in the secondary markets. Factors affecting their prices:
- Demand and supply of the securities.
- Changes in interest rates in the economy and other macro-economic factors, such as, liquidity and inflation.
- Developments in other markets like money, foreign exchange, credit and capital markets.
- Developments in international bond markets, specifically the US Treasuries.
- Policy actions by RBI like change in repo rates, cash-reserve ratio and open-market operations.
|Why in News?|
From April 7 to September 22 in this financial year, 27 States and 2 Union Territories have cumulatively raised ₹3.26 lakh crore via State government securities or State development loans (SDLs).
● This is a 45% increase from the borrowings in the corresponding period of 2019-20.
● Tamil Nadu, Maharashtra, Andhra Pradesh, Karnataka and Rajasthan have been the top 5 borrowing States, accounting for 54% of total borrowings by States so far.
- What are G-Secs?
- Short and long term securities.
- Powers of the Centre and states to issue these instruments.
- Role of RBI.
- Factors which affect the prices of these securities.
What are G-Secs? Why are they significant? Discuss.
Sources: the Hindu.