In India, the traditional concern for public debt has been with fiscal deficits (both Centre and State) and with the size and maturity of the country’s external debt. Somewhat less attention has been paid to the level, cost and structure of its overall public debt, both domestic and external.
The outstanding liabilities comprises of the Internal (Market Borrowings, RBI Treasury Bills, small savings and deposits, provident fund, reserve fund) and External liabilities. The total outstanding liability of the Government of India as per 2004-05 (BE) was nearly Rs.20 lakh crores (64% of the GDP), of which internal debt account for 97 per cent. Adding the State government’s outstanding liabilities of Rs.9.11 lakh crores the total outstanding liability exceeds the GDP (Rs.26.75 lakh crore) of 2004-05 (BE).
Another indicator that signals the seriousness on the level of indebtedness is the proportion of the Revenue deficit to the Fiscal deficit. This ratio reflects the fact that a large portion of the Fiscal deficit goes to finance public consumption expenditure pre-empting public investment.
The Revenue deficit, which constituted 49.4 percent of the fiscal deficit in 1990-91 accounted for 73.09 percent of fiscal deficit in 2003-04 (B.E).
This is because of the declining trend witnessed in the Tax – GDP Ratio. At the rate 5.64% per annum during 1980-81 to 1989-90 has come down to 3.03% during 1990-91 to 1999-2000. A major part of the borrowings of the Government go to meet the current consumption expenditure. Table below indicates composition of public debt of the Central Govt. of India.
The Essay on United States Public Debt And Steady Tax Raises
The short summarized version of the filmy I.O.U.S.A. clarified some information that I had learned about in my AP Government class such as the deficit and how we got in such a big hole. History does repeat itself and this clips goes on to show how the US have been in debt since independence. This is surprising to me because the US has been considered the richest country for so long but we have ...
Apart from internal debt, there are also internal liabilities of the central government in the form of small savings of the public, provident funds, reserve funds & deposits of Government department. Both internal and external debts carry a burden on the economy of nation.
The Burden of Internal Public Debt
1. Internal debt trap
One of the bad effects of internal debt is the interest paid by the government. Such interest payments increase public expenditure and may become a cause for fiscal deficit. If internal public debt is not checked and kept within limits, it may take the country to the worst position called ‘Internal Debt Trap’.
2. More burden on poor and weaker sections
Internal debt provides opportunities for the rich and higher middle class to earn a higher rate of interest from the state on their lending. At the same time the poor suffer a lot due to the tax burden. The government levies taxes to repay interest on public debt. But the tax burden does not necessarily fall on the rich unless it is progressive in nature. In the case of indirect taxes, the burden is felt more by the poor than the rich.
3. Increasing interest burden
Public borrowing may become costlier for the government especially when it resorts to public borrowing by issuing bonds and debentures. Such bonds and debentures carry a high rate of interest to the extent of 15 percent. The impact of such interest payments may develop manifold and still worsen in the future if the government stick to the same policy of borrowing in the years to come.
4. Unjustified transfer
The servicing of internal debt involves transfers of income from the younger to the older generations and from the active to the inactive enterprises. The government imposes taxes on enterprises and earnings from productive efforts for the benefit of the idle, inactive, old and leisurely class of bond holders. Hence work and productive risk taking efforts are penalised for the benefit of accumulated wealth. This adds to the net real burden of debts.
5. Indirect real burden
Internal debt involves an additional indirect real burden on the community. This is because the taxation required for servicing the debts reduces the tax payer’s ability to work and save and affects production adversely. The government may also economise social expenditure thereby, reducing the economic welfare of the people. Taxation will reduce the personal efficiency and desire to work. Thus there would be a net loss in the ability and desire to work. The creditor class will also not have any incentive to work hard due to the prospect of receiving interest on bonds. This would further cause a loss to production and increase the indirect burden of debt.
The Research paper on Impact of Public Debt Burden on Economic Growth of Bangladesh
Abstract Bangladesh is relying heavily on public debt to meet the budget deficit since its independence. In this paper, the objective is to find out whether the government of Bangladesh is excessively borrowing from the public sources and thus negatively affecting the economy of the country. For this purpose GDP growth rate (GDP), manufacturing sector growth rate (MANF), investment as percentage ...
The Burden of External Public Debt
external debt is beneficial in the initial stages as it increases the resources available to the country. But its repayment & servicing creates a burden on the debtor country.
1. External debt trap
The external debt creates direct money burden. This is because; it involves transfer of funds from the debtor country to foreign citizens. The degree of burden depends upon the interest rate, and the loan amount. The loans are normally to be paid in foreign currency. Therefore, the funds are mostly transferred from export earnings or by raising more funds from foreign markets. Borrowing by way of additional loans would put extra burden on the country. The situation may become so worse, that the country may be caught in the external debt trap. It may have to borrow from foreign markets to repay the interest amount and it would be very difficult to repay the principal amount.
2. Direct real burden
The external debt may also result in direct real, burden. The citizens of the debtor will have to suffer loss of economic welfare to the extent of repayment of principle amount and interest burden. The foreign currency earned through exports would have been utilized to import better goods and technology. This would have increased the economic welfare of the citizens of the debtor country. But because of external debt repayment, they have to restrict their welfare which the imported goods would have provided. In other words, the citizens of debtor country are deprived of imported goods and service to the extent till the loans and interest amount is repaid.
The Essay on World Population Countries Control Future
World Population Human population has grown more rapidly during the last century than it ever has before. There are more than 3 times as many people on earth today, than there was at the beginning of the twentieth century. Our future size and growth depends mostly on our age structure, survivorship, and fertility rates. All growing countries have slow growing populations. It is the countries with ...
3. Decline in expenditure to public welfare programmes
When the government spends a significant portion of its resources towards the payment of foreign debt it reduces the government expenditure to that extent which otherwise would have been spent for public welfare programmes.
4. Decline in the value of nation’s currency
The repayment of external debt involves an increase in the demand for the currency of the creditor country. This will raise the exchange rate of the creditor country’s currency, and aggravate the problem of foreign exchange crisis. The creditor country may also be adversely affected if it is induced to import more from the debtor country. This may hinder the growth of their domestic industries and cause unemployment.
5. Burden of unproductive foreign debt
The magnitude of external debt burden depends upon whether the debt is incurred for productive purposes or for unproductive purposes. If it is incurred for unproductive purposes, it will create a greater burden and sacrifice on the citizens of the debtor country.
6. Political exploitation
In recent years, it was found that the lending countries who dominate international organisations like World Bank & international monetary fund use the lending opportunity as an instrument to exploit the borrowing countries economically & politically.
Shifting the Burden of Public Debt
When resources for government expenditure are generated through taxation, the present generation bears the burden but when resources are generated through public debt, the future generation pays the interest & principal and thus bears the burden. Thus in the case of public debt the burden falls on the prosperity. Payment of such projects out of taxation would be unjustified as it would put burden on the present generation while benefit would accrue to the future generations. In future when the time for payment of interest & principal comes, the government will have to tax people to pay money to bond holders.
The Report on Parag Khanna Maps the Future of Countries
Parag Khanna Maps the Future of Countries Personally, I strongly agree with Khanna with his statements about the future of countries. I believe that in today´s world countries are “invading” other nations by imposing culture, a large number of immigrants and exporting local products into other markets. The example that Khanna gives about China is the best one; this is because the “Asian giant” is ...
The future tax payers will pay future bond holders. It would merely imply diversion of funds from one set of people to another within the country. However, it will involve direct real burden as the classes of tax payers & bond holders are likely to be different. The burden of taxation is likely to be heavy on general mass while the benefit will accrue to small rich class of bond holders.
Whether the burden of public debt is borne by future generations or not may also depend upon many factors. The loan raised for productive purposes may not create burden on future generation since it will create assets and will add to productive capacity of the economy. This would not only increase income for present generation but also for the posterity. If it is used for unproductive purposes or emergencies like war it will shift burden on future generation. Whether the burden will shift or not also depends on whether the present generation pays off debts by sacrificing current consumption or investment. If it is done by reducing current consumption, future generation will not bear the burden. But if it is done by reducing investment the future generation will bear the burden.
If loans are short term it can be repaid by the current generation. This will not shift the burden. In case of long term loans shifting of burden will depend upon whether the loan is self liquidating or deadweight. It may be concluded from the above analysis that shifting of the burden of public debt from present to future generations may be possible, but it depends of various factors.
