economics hard MCQ

Many State Governments in India maintain a 'Consolidated Sinking Fund' (CSF). What is the primary purpose of this fund?

  1. To provide emergency relief during natural disasters like floods and earthquakes
  2. To accumulate resources over time specifically for the redemption of the state's outstanding open market borrowings
  3. To finance the construction of new state capital cities
  4. To guarantee the pension liabilities of state government employees

Answer: To accumulate resources over time specifically for the redemption of the state's outstanding open market borrowings

The CSF acts as a mandatory sinking reserve. States are required to contribute a small percentage of their outstanding debt to this fund annually, which is then invested in safe government securities. When a state's bond matures, it uses the accumulated corpus in the CSF to repay the principal, preventing sudden, massive spikes in the state's fiscal deficit in a single year.

Topic Public Finance - Institutions
Exam Relevance UPSC Prelims, SSC CGL
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