Public Debt

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 any income in return.


(3) Compulsory and Voluntary Debt: When government borrows from people by using coercive methods, loans so raised are referred to as compulsory public debt. e.g. Tax,
When government floats loans by issuing securities, the members of the public and institutions like commercial banks may subscribe to them. e.g. Public Borrowings.


(4) Redeemable and Irredeemable Debt: Loans which the govt. promises to pay off at some future date are called redeemable debts.
Loans for which and all that the govt. does is to agree to pay interest regularly for the bonds issued, are called irredeemable debts.

 


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