With reference to the Indian Public Finance consider the following statements: 1. External liabilities reported in Union Budget are based on historical exchange rates 2. The continued high borrowing has kept the real interest rates high in the economy 3. The upward trend in the ratio of Fiscal Deficit to GDP in recent years has an adverse effect to private investments. 4. Interest payments is the single largest component of the non-plan revenue expenditure of the Union Government. Which of these statements are correct?

Let's analyze each statement regarding Indian Public Finance: 1. External liabilities reported in Union Budget are based on historical exchange rates. This is incorrect. External liabilities, particularly foreign currency denominated debt, are valued based on the prevailing exchange rates at the time of reporting to accurately reflect the current obligation in domestic currency. Using historical rates would not show the true current value of the debt. 2. The continued high borrowing has kept the real interest rates high in the economy. High government borrowing can lead to higher demand for credit in the market, potentially increasing interest rates (crowding out effect) and/or leading to inflation, which affects real interest rates. This statement is generally plausible as a consequence of high government borrowing. 3. The upward trend in the ratio of Fiscal Deficit to GDP in recent years has an adverse effect on private investments. A high and rising fiscal deficit means the government is borrowing more, which can reduce the availability of funds for the private sector or increase the cost of borrowing, thus potentially crowding out private investment. This is a standard economic argument.