PUBLIC DEBT

Need for Public Debt1. War Period -2. Depression Period - Low income, demand & employment3. To Curb Inflation – 4. Unexpected Expenses – Floods, Famines, Drought etc.5. Development Finance -

Types /Classification of Public Debt1. Internal and External Debt: A) Internal Debt B) External Debt2. Productive and Unproductive Debt: A) Productive Debt – Yield income Productive purposes – Railways, Irrigation Projects B) Unproductive Debt – War, Famine Relief3. Voluntary and Compulsory Debt: A) Voluntary Debt – No compulsion -

- Through Securities and Bonds. B) Compulsory Debt – Force people to lend money – Employees provident funds.4. Redeemable and Irredeemable Debt – A) Redeemable Debt – Repaid with interest and principal- Fixed time period. B) Irredeemable Debt – Interest paid regularly – Period is not fixed

5.Funded and Unfunded Debt: A) Funded Debt – Long term debt – One Year – for Building Social and Economic Infrastructure B) Unfunded Debt – Short term debt – Less than one year – Treasury Bills6. Short, Medium and Long Term Debts: A) Short Term Debts – Less than one year - Treasury Bills – Cover Temporary Deficits in Budget B) Medium Term Debts -

One to Five Years – Reasonable Interest Rate- War, Health, Education Relief Work etc. C) Long Term Debt – More than Five years – Development Finance.

BURDEN OF PUBLIC DEBT

Burden imposes on society1.Burden of Internal Debt – Raised and Repaid Within the Country- Transfer of Purchasing Power from one to another. Imposes Burden in the Following Way- i)Direct Real Burden – Indirect Taxes ii)Indirect Real Burden -

Negative effect on Ability and Willingness to Work, Save and Investment. iii) Effect on Private Investment – Offers High Rates of Interest iv)Effect on Capital Expenditure – To meet Revenue Deficit – No Development of Infrastructure v) Inflation – Indirect Taxes –Reduce the Purchasing Power of the Poor.