PUBLIC DEBT IN INDIA

WHAT DO YOU MEAN BY PUBLIC DEBT?

Local, state and federal

governments all borrow money to pay for large projects, such as new government buildings, schools or for funding etc. This forms what is collectively known as the public debt, so- called because it is money that public organizations owe for which the burden of paying rests ultimately with taxpayers. This debt can take the form of many types of loans to the government.Public debt may be raised internally or externally.

TYPES OF PUBLIC DEBT Government loans are of different kinds, they may

differ in respect of time of repayment, the purpose, conditions of repayment, method of covering liability etc.The kinds are:

•  Productive and Unproductive debts The debts which are productive for the economy are

known as productive, similarly the debts which do not benefit the economy are unproductive.

• Voluntary and Compulsory Debt Generally the debts taken are voluntary, on the part of

the government, known as voluntary debts whereas in times of wars or crisis there is a mandatory loan taken by the government known as compulsory debt. It is a rare phenomenon.

• Internal and External Debt Internal debt refers to public debt floated within the

country; While external debt refers loans floated outside the country.

• Short-Term, Medium-Term & Long-Term Debts 

The debts maybe for short, medium or long periods.

• Redeemable and Irredeemable Debts  The debts which the government

promises to pay at a future date are known as redeemable and Irredeemable is vice-versa. It does not have a maturity period.

• Funded and Unfunded Debts The funded debts are those which are

paid after a long period of time with a fixed rate of interest.

Unfunded debts are incurred to meet the temporary needs of the government. They are of a comparatively short period say a year.

STATUS OF PUBLIC DEBT IN INDIA

During recent years, public debt in India has been growing at an alarming rate. The under developed nature of the economy & institutional credit deficiencies makes the financing of economic development a complicated problem. Hence the government has to play a key role in stimulating the rate of capital formation & in promoting the economic development of the economy.So public debt can be used by the government as means for mobilizing the resources.The following table indicates the composition of PUBLIC DEBT of the Central Government of India.

The Centra l Government of Ind ia 's debt has increased by over 7 t imes between 1990-91 and 2005-06. Apart f rom interna l debt , there are a lso interna l l iab i l i t ies o f the Centra l Government in the form of smal l sav ings of the publ ic prov ident funds, reserve funds and depos i ts o f Government departments . Interna l and externa l debt are the major components of pub l ic debt .

The sub-components of interna l and externa l debt are:

INTERNAL DEBT:

Market loanTreasury b i l l sBondsSpec ia l secur i t ies issue by RBIWays and Mean Advances ( To meet the

short term expenditure)Spec ia l fl oat ing and other loans (These

represents Ind ia 's contr ibut ion towards share cap i ta l o f internat iona l fi nanc ia l inst i tut ions l ike IMF, Wor ld Bank, Internat iona l Development Agency and so on. )

EXTERNAL DEBT:

• Bilateral borrowings• Multi lateral borrowings• Loans from international organizations like IMF, World

Bank etc.

OTHER INTERNAL LIABILITIES:

• Small savings (Recently the Government of India launched a number of small savings instruments. These include Relief Bonds 1987, Kisan Vikas Patras, Indira Vikas Patras, etc. )

• Provident Funds• Reserve funds and deposits• Other accounts (Postal Insurance and Life Annuity

Fund etc.)

TREND OF PUBLIC DEBT2005-10 (in % 0f GDP)

2005 2006 2007 2008 2009 2010

59.7 53.8 52.8 61.3 57.3 55.9

In 2011, Ind ia stands on the 44 t h pos i t ion in the wor ld , hav ing 55.9% of GDP as pub l ic debt . Japan has the maximum publ ic debt at 225.8% of GDP.

Puts burden on the citizens of the country

Leads to increase in taxAdversely affects the growth and

development of IndiaResults into India borrowing more from

International Org. like World Bank.Productive use of the funds is not

guaranteed.

DEMERITS OF PUBLIC DEBT

HOW TO MANAGE PUBLIC DEBT?

• REDUCTION IN PRIMARY DEFICIT Attempts must be made to contain most revenue expenditures

within the revenues raised by the Government so that Government's net borrowing is used only for productive purposes.

• REDUCTION IN CURRENT EXPENDITURE That means, reduction in gov., expenditure for its staff, reduction

in subsidies etc.• FOREIGN INVESTORS Encouragement of foreign investment should be done.• MORE DISINVESTMENT The government should hand over the sick units to the private

sector for development.• PROPER MONITORING OF PUBLIC EXPENDITURE If the expenditure is less and efficient the need for debt

automatically decreases.• CONSOLIDATED SINKING FUND (CSF) There is an urgent need for creating CSF to break the vicious cycle

of burden of debt and repayment.

The main reason for increase in internal public

debt in India during 1961-2004 was the requirement of funds for financing various developmental programmes as both tax and non-tax revenues were totally inadequate to finance the government expenditure.

The external public debt in India increased significantly during 1961-2004 as it was utilized to make import payments and solve balance of payment problems.

The tremendous rise in total public debt in India during 1991-2004 provides an alarming signal to Indian economy. There is an urgent need to manage public debt in India.

However we cannot ignore the fact that public debt is essential for the functioning of the government and the economy. But there is also a point we need to think upon that is, “Government debt (Public debt) is increased future taxation”

CONCLUSION

BIBLIOGRAPHY

Thanks to :1. www.ehow.com2. www.indexmundi.com3. www.kalyan.city.blogspot.com4. www.wikipedia.com5. www.reuters.com

BY HEER KHANT