With respect to the ldquo Consolidated Sinking Fund CSF rdquo consider the following statements 1 It...........

Economic Affairs Money Supply and Monetary Policy

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With respect to the “Consolidated Sinking Fund (CSF)”, consider the following statements:

1. It is a Fund maintained by the states with the RBI for the redemption of loans raised by them.

2. It is mandatory for the state governments to set up the Fund as recommended by the 12th Finance Commission.

Which of the statements given above is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Explanation:

The Consolidated Sinking Fund (CSF): It is a Fund maintained by the states with the RBI for the redemption of loans raised by them. The state governments could contribute 1% to 3% of the outstanding market loans each year to the Fund.

The money deposited by the states in the CSF is, in turn, invested by the RBI in various dated securities issued by the Central Government. So, even the interest earned on such investments can be used for repaying the debt obligations of the state governments.
The 12th Finance Commission had recommended that all the states should have to set up the CSF. However, as of now, it is not mandatory for the state governments to set up the Fund.
Recent guidelines: The RBI has decided to relax the rules regarding the withdrawal of money by the states from the CSF. This measure will enable the states to meet about 45% of the redemptions of their market borrowings due in 2020-21.