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India’s public debt level among highest in emerging economies

Topics Covered: Government Budgeting.

India’s public debt level among highest in emerging economies:


Context:

As per Moody’s Investors Service, India’s public debt level is among the highest in emerging economies with a quantitative easing programme underway, while its debt affordability is among the weakest.

What is Public Debt?

Public debt is the total amount borrowed by the government of a country.

In the Indian context, public debt includes the total liabilities of the Union government that have to be paid from the Consolidated Fund of India. It excludes liabilities contracted against Public Account.

Sources of Public Debt:

  1. Dated government securities or G-secs
  2. Treasury Bills or T-bills
  3. External Assistance
  4. Short term borrowings

Public Debt definition by Union Government

The Union government describes those of its liabilities as public debt, which are contracted against the Consolidated Fund of India. This is as per Article 292 of the Constitution.

Types:

It is further classified into internal & external debt.

Internal debt is categorised into marketable and non-marketable securities.

  • Marketable government securities include G-secs and T-Bills issued through auction.
  • Non-marketable securities include intermediate treasury bills issued to state governments, special securities issued to national Small Savings Fund among others.

What is Debt-to-GDP ratio?

The debt-to-GDP ratio indicates how likely the country can pay off its debt. Investors often look at the debt-to-GDP metric to assess the government’s ability of finance its debt. Higher debt-to-GDP ratios have fuelled economic crises worldwide.

Is there an acceptable level of debt-to-GDP?

The NK Singh Committee on FRBM had envisaged a debt-to-GDP ratio of 40 per cent for the central government and 20 per cent for states aiming for a total of 60 per cent general government debt-to-GDP.

InstaLinks:

Prelims Link:

  1. What are G-Secs?
  2. What are T-Bills?
  3. What is ways and means advance?
  4. What is FRBM Act?
  5. About Consolidated fund of India.
  6. About Article 292 of the Constitution.

Mains Link:

How does increased government borrowing affect govt finances? Discuss.

Sources: the Hindu.