Q.1-10.Read the following passage carefully and answer the questions given below it. There are certain words given in bold that will help you locate them while answering some of the questions.
Indian households have always accounted for the major share of gross domestic savings. But they seem to have lost the savings habit now. You can blame some of that on consumerism. But what explains the fall in the share of their savings in financial instruments? Received wisdom says persistently high inflation since 2009. Years of negative real returns from a host of financial instruments, especially bank deposits, has seen Indian households react in the only way they can — by turning to physical assets, typically gold.
According to the RBI, household savings declined from 25.2 per cent in 2009-10 to 22.3 per cent in 2010-11. Worse, financial savings by households fell to a paltry eight per cent in 2011-12, down from 12 per cent in 2009-10 and 10.4 per cent in 2010-11 even as savings in physical assets rose to touch 14.3 per cent in 2011-12, up from 13.1 per cent in 2010-11.
But savings in financial instruments are the bedrock of a modern financial system. Corporates seeking to raise both equity and debt and governments looking for ways to fund their deficits need finance. Typically this need is met predominantly by savers willing to hold their savings in the form of financial instruments.
What happens if savers turn their face against financial instruments? In countries like India where households account for the major share of savings, the fallout can be disastrous. Not only are banks starved of lendable funds, the resort to gold import has adverse consequences for our balance of payments.
But are households across the country uniformly disenchanted with all financial assets? Or do certain financial assets find more favour than others? Is there a regional pattern to these preferences? Do factors like literacy, income levels and the rural-urban divide play a role in determining people’s choices? Not much information is available regarding the distribution of savings by households at the disaggregated level — state-wise, in terms of income decile, rural-urban divide, and so on.
The NCAER’s NISHIE (national survey of household income and expenditure) survey 2010-11 provides some interesting insights. First the rural-urban divide. While the average household income in urban areas is almost twice that in rural areas, the average household investment in financial assets in urban areas is thrice that in rural areas.
Savings in bank deposits are the overwhelming favourite in both rural as well as urban areas, with rural households opting to hold 46.7 per cent of their financial assets in bank deposits and urban households following close behind at 44.6 per cent.
When it comes to the second-most popular form of savings, there is a clear divergence between rural and urban areas with rural households preferring insurance to savings in provident funds, both employee and public provident funds as compared to urban households who seem to prefer the latter.
Insurance is a more complicated product than provident fund. But the apparent contradiction is, perhaps, explained by the medical insurance cover extended under programmes such as the Rashtriya Swasthya Bima Yojna in rural areas, while the larger share of the organised work force in urban areas relative to rural areas explains why PF/PPF are the second-most popular form of savings in urban areas.
A state-wise comparison shows households in Punjab, Haryana and Rajasthan have a strong preference for bank deposits, with over 55 per cent of financial assets being held in bank deposits.
In contrast, households in Kerala and Andhra Pradesh hold less than 30 per cent of their savings in bank deposits. Both states have a strong network of bank branches, so poor access to banks may not be the reason why bank deposits are less favoured. The reason, perhaps, lies in the relatively greater share of household savings going towards self-help groups/chit funds and the stock market; yes even in Left-dominated Kerala!
As against the all-India average of just 2.1 per cent of household savings going to the SHGs/chit funds, households in Kerala invested about a fifth of their financial savings in them while the comparable number for households in Andhra was 9.4 per cent.
Again, households in Andhra and Kerala saved about 6.1 and 5.1 per cent of their total financial savings in the stock market as against all-India average of 2.8 per cent. Another interesting finding is that households in Assam, particularly in rural areas, put about one-fifth of their savings in the post office followed by West Bengal which is 10.8 per cent. It may be due to the non-existence of other financial institutions or more trust in government institutions.
Q.1. According to NISHIE survey, second-most popular form of savings in urban area and rural area is-
(1) Bank deposits (2) Insurance policies (3) PPF/PF (4) Stock market (5) PF/PPF in urban area and insurance policy in rural area
Q.2. What percentage of the savings is held in the form of bank deposits by the households in Kerala and Andhra Pradesh?
(1) Less than 30 percent (2) Almost half (3) More than 60 percent (4) Less than 40 percent (5) Not mentioned in the passage
Q.3. Which of the following is FALSE in the context of the passage?
(1) People in both rural and urban areas prefer keeping their savings in bank deposits
(2) Investment in financial instruments is crucial to the health of financial system.
(3) There is enough information about distribution of savings by households at the disaggregated level.
(4) The average household income in urban areas is almost twice of that in rural areas.
(5) All of the above
Q.4. Which of the following best explains the term ‘received wisdom’ as mentioned in the passage?
(1) Circulated money (2) Complaints (3) Quality checks
(4) Gathered information (5) Any of the above
Q.5. Why do Indian households seem to have lost the habit of saving?
(1) Households have developed interest in investing in gold, in recent times.
(2) Due to consumerism, they have started spending more.
(3) They are unable to find financial instruments of their choice.
(4) Only 2 and 3
(5) Not mentioned in the passage
Q.6. Which of the following issues has been raised in the passage, for discussion, by the author?
(1) Do households’ choice of financial assets have any impact of the region they belong to?
(2) Rural-urban divide, income level and literacy level have any impact on households’ choices of financial assets or not?
(3) Whether or not all the households in the country, choose to invest in same financial instruments?
(4) What consequences follow when people do not invest in financial instruments?
(5) All of the above
Q.7-8.Choose the word which is most nearly the SAME in meaning as the word printed in bold as used in the passage.
Q.7. Overwhelming
(1) Enthusiastic (2) Less (3) Hapless (4) Prior (5) Most
Q.8. Starved of
(1) Thought of (2) Shown (3) Registered (4) Short of (5) Aversion
Q.9-10.Choose the word which is most nearly the OPPOSITE in meaning as the word printed in bold as used in the passage.
Q.9. Divergence
(1) Expression (2) Similarity (3) Tragedy (4) Difference (5) Minority
Q.10. Predominantly
(1) Slightly (2) Interestingly (3) Chiefly (4) Truly (5) Sadly
ANSWERS
Q.1.(5) Q.2.(1) Q.3.(3) Q.4.(4) Q.5.(4) Q.6.(5) Q. 7.(5) Q.8.(4) Q.9.(2) Q.10.(1)
