Economy / Fiscal Policy / Public Debt.
Public Debt.
Public Debt in India: Key Points
- Classification of Government Liabilities:
- Government liabilities are broadly categorized into debt contracted against the Consolidated Fund of India (Public Debt) and other liabilities in the Public Account.
- Public Debt Definition:
- Public debt refers to the debt of the government, encompassing both internal and external debt.
- Internal Debt Components:
- Internal debt includes market loans through government securities and borrowing from the Reserve Bank of India (RBI) through mechanisms like printing currency.
- Other Liabilities in the Public Account:
- This category includes liabilities related to Provident Funds, small saving deposits, and other such obligations.
- External Debt:
- External debt comprises the amount borrowed by a country from foreign lenders, including governments, commercial banks, or international financial institutions. It can be incurred by both the government and private entities.
- India's Debt-to-GDP Ratio:
- As of 2018-19, India's debt-to-GDP ratio, considering the total outstanding liability (internal and external), was 68.3%. States accounted for 24.5%, and the rest belonged to the Centre.
- Historical Trends:
- India's public debt reached its highest level of 83.23% in 2003 and its lowest at 47.94% in 1980.
- N.K. Singh Committee Recommendations:
- The N.K. Singh Committee, reviewing the Fiscal Responsibility and Budget Management Act of 2003, recommended reducing the debt-to-GDP ratio to 60% by 2022-23, with the Centre at 40% and states at 20%.
- Government's Target:
- The government set a target for the Centre to achieve a debt-to-GDP ratio of 40% by 2024-25.
- Investor Perspective:
- The percentage of government debt in relation to GDP is a crucial metric used by investors to assess a country's capacity to meet future debt payments. It influences borrowing costs and government bond yields.
Understanding and managing public debt is essential for fiscal planning, economic stability, and maintaining investor confidence. The government's adherence to debt reduction targets is closely monitored for its impact on the overall economy.
