Public Debt

Question 1

What is public debt?

Answer 1

Expenditure has been rising faster than revenue over the years. Hence, a deficit arises in the budget of the Government. This deficit can be bridged by borrowing from the public or printing new money.

Question 2

What is internal debt?

Answer 2

Internal debt refers to the public loans floated within the country.

Question 3

What is external debt?

Answer 3

External debt refers to the obligations of the country to foreign governments or foreign nationals or international institutions.

Question 4

What are the components of internal debt?

Answer 4

• Market loans.
• Bonds.
• Treasury bills.
• Special floating and other loans.
• Special securities issued by the RBI.
• Ways and means advances.
• Securities against small savings.

Question 5

What are the components of external debt?

Answer 5

A. Long term debt

• Multilateral borrowings.
• Bilateral borrowings.
• Loans from IMF, World Bank, etc.

B. Short term debt

Question 6

What are the other internal liabilities?

Answer 6

• Small savings.
• Provident funds.
• Other accounts.
• Reserve funds and deposits.

Question 7

What is the role of public debt?

Answer 7

• Smoothing out of the tax rate.
• Macroeconomic stabilization.
• Financing expenditure on human capital formation.
• Financing war and other emergency expenditures.
• For undertaking financial investments.