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UPSC PYQPrelims 2022

Civil Services Examination · Question 5

With reference to the Indian economy, what are the advantages of "Inflation-Indexed Bonds (IIBs)"? 1. Government can reduce the coupon rates on its borrowing by way of IIBs. 2. IIBs provide protection to the investors from uncertainty regarding inflation. 3. The interest received as well as capital gains on IIBs are not taxable. Which of the statements given above are correct?

  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2 and 3
Show answer & explanation

Answer: (A) 1 and 2 only

Explanation

IIBs carry lower real coupons because principal/interest is indexed to inflation, protecting investors. Interest and capital gains on IIBs are taxable.