Public Finance

Governments may raise public borrowing from both the internal and external sources. The sources of public borrowing are as follows.:- INTERNAL SOURCES   1) Individuals and private organizations:- They provide loans to government with the purchase of securities like bonds and treasury bills, reducing consumption, diverting savings accounts and corporate securities, and out of the funds that would remain idle. This source of debt normally does not exert inflationary pressure, except that from the idle funds, as there will be just a transfer of purchasing power from public to the government and no more money supply. 2)  Financial institutions:- Other than the commercial banks, like Provident Fund, Insurance Companies, Finance and Investment Companies, Co-operatives, Mutual Funds, etc. are the important source of public borrowing. These institutions normally provide loans to government to reduce their cash-holdings to earn some interests, for the safety of funds and to m...

Redemption is a way of escape from the burden of public debt. Redemption means repayment of a loan. Methods that are adopted for redemption of public debt are:- 1.  Refunding:- Refunding of debt implies the issue of new bonds and securities by the government in order to repay the matured loans.In the refunding process, usually short-term securities are replaced by issuing long-term securities. Under this method the money burden of public debt is not relinquished but it is accumulated owing to the postponement of debt redemption. 2.  Conversion:- Conversion of public debt implies changing the existing loans, before maturity, into new loans at an advantage in servicing charges. In fact, the process of conversion consists generally, in converting or altering a public debt from a higher to a lower rate of interest. A government might have borrowed at a time when the rate of interest was high. Now, when the rate of interest falls, it may convert the old loans into new ones at ...

MEANING Public Debt can be defined as the amount of debt taken by government from internal as well as external sources to meet out its deficit. Government needs to borrow when current revenue falls short of public expenditure. TYPES (1) Internal and External Debt: Public loans floated within the country, are called Internal Debt. Public borrowings from other countries, are referred to as External Debt. External debt permits import of real resources. It enables the country to consume more than it produces. The sources of internal debts are RBI, commercial banks, etc. and of external debts are loans from foreign government, IMF, World Bank etc. (2) Productive and unproductive Debt: When government borrows for development expenditure like on power projects, establishing heavy industries. etc. so that it generates revenue then the debt is productive. When government borrows for non-development uses, such as was finance, etc. the debt becomes unproductive as it does not create a...