Which of the following statements is correct regarding the government securities in the economy?

I. It is a tradeable instrument issued by the Central Government or the State Governments.

II. They are called risk-free gilt-edged instruments.

The correct answer is Both I and II.
Key Points

• Government Securities-
  • A Government Security (G-Sec) is a tradable instrument issued by the federal or state governments. (Hence, statement I is correct)
  • Government Securities are of two types-
    • Short term: With original maturities of less than one year. They are currently issued in three tenures: 91 days, 182 days, and 364 days. Example- Treasury Bills.
    • Long-term: With original maturity of one year or more. Example- Government bonds (dated securities).
  • Treasury bills and bonds, also known as dated securities, are both issued by the central government.
  • State governments issue only bonds or dated securities, which are known as State development loans.
  • They are known as Risk-free gilt-edged instruments because they are issued by the government and hence there is no danger of default. (Hence, statement II is correct)
  • FPIs (Foreign Portfolio Investment) are authorized to trade in G-Secs as long as they stay within the quantitative limits that are set from time to time.
  • The Reserve Bank of India has allowed retail investors to invest in G-Secs from November 2021.

Important Points

• RBI-
  • RBI was established in India on 1st April, in Kolkata in 1935 under the Reserve Bank Of India Act, 1934.
  • It was set up on the recommendation of the Hilton Young Commission.
  • RBI is the central bank of India and is responsible for the issue and supply of Indian currency.