Page 247 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes debt minus the value of capital assets of the government and loans and advances given by the
government to other sectors. Debt obligation can be of many types as:
Short term debts are the debt of which the maturity is less than one year at the time of issue and
consist of items like the treasury bills.
Some obligations may not have specific maturity but may be repayable subject to various terms
and conditions they are called Floating Debt.

Example: Provident funds, small savings, reserve funds and deposits.

Permanent of funded debt are loans having a maturity of more than one year at the time of issue.
Usually there maturity is between three and thirty years. Some of them may even be
non-terminable so that the govt. is only to pay the interest on such debt without ever repaying
the principle amount.
Obligations owed to foreigners – govt. institutions, firms and individuals are called external
loans.
Debt obligations of the Central Government are broadly divided into two categories:
Internal Debt

External Debt

Internal Debt

This includes loans raised within the country, like:
(a) Current market loans, (b) others, comprising balance of expired loans, compensation and
other bonds such as National Rural Development Bonds and Capital Investment Bonds, (c)
Special Bearer Bonds, (d) Treasury Bills, (e) Special floating and other loans, (f) Special securities
issued to the RBI, (g) Small savings, (h) Provident funds, (i) other accounts, and (j) reserve funds
and deposits.

External Debt

External debt is raised in foreign currency and a substantial part of it as it is also repayable in
foreign currency. External debt represent loans raised by a country from outside sources includes
debt raised by the Govt. and by the non-govt. sources such as NRI deposits, commercial borrowings
from abroad, suppliers credit and short-term borrowings, etc.

Did u know? Public debt in India has grown immensely in planning period. In 1999 the
total debt of central government was 8,75,925 and in 1998 debt of state government was
2,84,942. In the budget of 2005-2006 the 22% of total expenditure was only interest
payment. If the debt is owned by central bank of India it increases inflation as RBI meets
the growing demand by issuing additional quantity of money.

Public debt plays an important role in economy. Public debt contributes to the saving effort of
the economy. LDCs are usually short of capital resources. As saving capacity of the masses is
very low, appropriate measures are taken to step up rates of saving and investment in the
economy. The net effect of the borrowing also depends upon the sources from which they come:
If Govt. goes of the borrowings from the market and public reduces its own consumption and
lends its savings to the govt. the result will be a net increase in the rate of savings. But if loans are

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