UPSC PRELIMS · ECONOMICS · INFLATION-INDEXED BONDS

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?

Take a breath. Choose one. Press A–D on your keyboard if you like.

EXPLANATION

IIBs protect investors against inflation and can lower the inflation-risk premium in borrowing costs; their returns are not automatically tax-exempt.

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