The existence/establishment of formal financial institutions that offer safe, reliable, and alternative financial instruments is fundamental in mobilising savings. To save, individuals need access to safe and reliable financial institutions, such as banks, and to appropriate financial instruments and reasonable financial incentives. Such access is not always available to all people in developing countries like India and more so, in rural areas. Savings help poor households manage volatility in cash flow, smoothen consumption, and build working capital. Poor households without access to a formal savings mechanism encourage immediate spending temptations.

With reference to the above passage, consider the following statements:
1. Indian financial institutions do not offer any financial instruments to rural households to mobilise their savings.
2. Poor households tend to spend their earnings/savings due to lack of access to appropriate financial instruments.
Which of the statements given above is/are correct?

The correct option is 2 only.

Explanation:

Let us analyze the statements based on the provided passage:

Statement 1: "Indian financial institutions do not offer any financial instruments to rural households to mobilise their savings."
The passage states that access to safe and reliable financial institutions and appropriate instruments is "not always available to all people in developing countries like India and more so, in rural areas." This implies that access is limited or unequal, but it does not mean that Indian financial institutions do not offer any financial instruments to rural households at all. The statement makes an extreme and incorrect generalization that is not supported by the passage. Therefore, Statement 1 is incorrect.

Statement 2: "Poor households tend to spend their earnings/savings due to lack of access to appropriate financial instruments."
The passage explicitly states that "Poor households without access to a formal savings mechanism encourage immediate spending temptations." Since a formal savings mechanism relies on having access to appropriate financial instruments and institutions, the lack of such access directly leads to spending temptations (i.e., they tend to spend their earnings/savings instead of saving them). Therefore, Statement 2 is correct and directly supported by the passage.

Consequently, only Statement 2 is correct, making 2 only the correct answer.