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Question No. 303Interactive Test Mode
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Q303. With reference to the Indian economy, what are the advantages of “Inflation-Indexed Bonds (IIBs)”? 1. The 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?

With reference to the Indian economy, what are the advantages of “Inflation-Indexed Bonds (IIBs)”?

  1. The 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?
Select the correct option below (or cross out options to eliminate)

Official Answer Key & Detailed Solution

Ready to check the official UPSC Answer Key?

Click any option above to test yourself under exam conditions, or reveal the explanation directly.

Official UPSC Answer KeyUPSC Prelims 2022 • Indian Economy

Correct Answer: Option (A) — 1 and 2 only

Concept & Option Breakdown

Standard Reference Verified

Statement 1 is correct: Since investors receive protection against inflation on the principal/coupon base, the government can offer IIBs at lower real coupon rates compared to fixed-rate nominal bonds carrying inflation risk premiums.

Statement 2 is correct: IIBs adjust the principal and/or interest payments based on an inflation index (such as WPI/CPI), ensuring guaranteed positive real returns.

Statement 3 is incorrect: IIBs are subject to normal tax rules applicable to debt instruments; there is no general tax exemption on interest income or capital gains from IIBs.

Elimination Heuristic & Exam Approach

Total tax-exemption claims (like statement 3) on broad sovereign market debt instruments are usually incorrect unless explicitly established as special tax-free infrastructure/savings bonds.

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Question Specifications & Syllabus Mapping

Examination & YearUPSC Civil Services Preliminary Examination 2022 (Q303)
Paper & Marking SchemeGS Paper I • 2 Marks (-0.66 Negative for incorrect response)
Syllabus Subject & TopicIndian Economy → Indian Economic Planning & Growth
Official Answer KeyOption (A) — 1 and 2 only

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Frequently Asked Questions — UPSC Prelims 2022 Q303

What is the official answer for UPSC Prelims 2022 GS Paper I Question 303 (Indian Economy)?

The official UPSC answer key for this 2022 Indian Economy (Indian Economic Planning & Growth) question is Option (A): "1 and 2 only". Correct attempts carry 2 Marks with -0.66 Negative penalty for wrong answers.

Which UPSC Prelims syllabus topic does this 2022 question belong to?

This question belongs to GS Paper I under the subject "Indian Economy" and micro-topic "Indian Economic Planning & Growth". You can explore all repeated questions from Indian Economic Planning & Growth in Acme AI's 3D Prelims PYQ Realm or practice 50 full-length and sectional tests in the APT Prelims Test Series.

How can I solve this Indian Economic Planning & Growth UPSC Prelims question using option elimination?

Total taxexemption claims (like statement 3) on broad sovereign market debt instruments are usually incorrect unless explicitly established as special taxfree infrastructure/savings bonds.

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