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[…] 10 October […]
Public debt means the debt incurred by the government from different sources to meet its excess expenditure. It is also known as public interest, government debt, national debt and sovereign debt.
The Union government’s debt was ₹155.6 trillion, or 57.1% of GDP, at the end of March 2023, with state governments adding about 28% of GDP to the overall debt burden. India’s public debt-to-GDP ratio slightly increased from 81% in 2005-06 to 84% in 2021-22, and then back to 81% in 2022-23.
Types of Public Debt
There are four types of public debt:
Internal and External Debt
The government’s borrowing within the country is known as internal debt. The government can borrow this debt from sources like banks, individuals, business firms and other internal sources.
Productive and Unproductive Debt
When a sovereign loan is taken for income-generating activities like developing irrigation facilities, electricity plants, or roadways, railways, and bridges, it is considered a productive debt.
Redeemable and Irredeemable Debt
Loans with fixed future repayment dates or maturity dates are called redeemable debts. In comparison, loans without fixed repayment dates are called irredeemable debts.
Voluntary and Compulsory Loans
When the government issues debt securities to raise funds from individuals, firms, and financial institutions, it is considered a voluntary loan.
Different concerns of increasing public debt in India
A public debt turning point is found at a debt ratio around 51 percent. Every 1 percentage point growth in the debt ratio above this point is found to negatively suppress the GDP growth rate by 0.1626 percentage point.
Low Credit Rate
High debt levels can lead to lower sovereign ratings by rating agencies which can increase the cost of external commercial borrowing, making it more expensive for the government to raise funds from international markets.
High tax rate
The large increases in the debt-to-GDP ratio could lead to much higher taxes, lower future incomes, and intergenerational inequity (Boskin 2020).
Limitations on Fiscal Policy
Increase in public debt may restrict the government’s capacity to enact counter-cyclical fiscal measures in times of economic downturns.
Burden on Future Citizens
A significant amount is allocated to government departments where corruption, bribery, and bureaucratic hurdles are prevalent which leads to the misuse of public money.
Financial System Risks
A high concentration of public debt in the financial system can cause systemic risks which could trigger a chain reaction affecting the stability of the entire financial system.