Why in News?
How high is India’s national debt?
It came in at 57.1% of GDP in FY23, up from 52.2% of GDP in FY14
 
What is Public Debt? 
·         Public Debt is the total amount that includes external debt, internal debt and also total liabilities, borrowed by the government to meet its development expenses.
·         It is to be paid from the Consolidated Fund of India. It can also refer to the overall liabilities of central and state governments. This is provided under Article 292 of the Indian Constitution.
·         According to the Finance Ministry reports, in FY20, India's total debt burden as a percentage of GDP was 51.6 percent; in FY21, it was 60.5 percent.
·         The debt-to-GDP ratio demonstrates the country's ability to repay its debt. The debt-to-GDP ratio is frequently used by investors to analyze the government's ability to service its debt. Increased debt-to-GDP ratios have fueled global economic crises.
 
What was the total debt of the union government as of 31 March, 2023? 
·         The national debt stood at Rs 155.6 lakh crore (57.1% of GDP) as of 31 March, 2023. It was Rs 58.6 lakh crore (52.2% of GDP) on 31 March 2014, just before the current government came to power.
  
Did the government's debt increase during the pandemic?
·         At the end of FY20, the government's debt stood at Rs105.1 lakh crore (52.4% of GDP). This increased to Rs121.9 lakh crore (61.5% of GDP) at the end of FY21. This increase of about 9% in a single year was mainly on account of the pandemic, which hugely disrupted projections of the government’s finances. However, the debt has fallen since then.
 
Is this debt held in rupees or foreign currencies? 
·         It is held predominantly in rupees. As of 31 March, 2014, the government’s external debt (at current exchange rates) was 6.4% of total debt and 3.3% of GDP. This declined to 4.8% of total debt and 2.7% of GDP as of 31 March, 2023. The government’s external debt is mainly financed by multilateral and bilateral agencies.
 
Which multilateral agencies finance India's external debt? 
·         These include the International Bank for Reconstruction and Development, International Development Association, International Fund for Agriculture Development, Asian Development Bank, New Development Bank, Asian Infrastructure Investment Bank, European Economic Community, Organisation of Petroleum Exporting Countries, and European Investment Bank.
 
Which countries have exposure to India's external debt? 
·         They include Germany, France, Japan, the US, Russia and Italy. As of 31 March, India's debt exposure to Japan stood at Rs169,381 crore, Russia at Rs25,448 crore, Germany at Rs22,615 crore, France at Rs9,402 crore, and the US at Rs274 crore.
 
Reasons For Borrowing/Public Debt: 
·         The income generated is not sufficient to carry out the required expenditure.
·         Presently the tax part of national income is less than 20%, hence there is a small share of taxes in the national income.
·         There is greater reliance on indirect taxation and therefore most of the pressure falls on lower-class strata.
·         Asymmetrical institutional setup for taxation for instance complex tax systems with greater tax evasion.
·         There is a gross misuse of public funds due to corruption, wasteful projects, red-tapism etc.
·         In order to accomplish various government schemes and plans financial resources are needed.
·         Lately, the increase in Public Debt has been mainly due to the following reasons.
·         Total central government debt was increased in both absolute terms and as a percentage of GDP that fiscal due to bank recapitalization.
·         Due to the issuing of Ujwal Discom Assurance Yojana (UDAY) bonds, there has been an increase in liabilities of states which have increased during 2015-16 and 2016-17.
·         There is a small share of taxes in national income, most of which comes from indirect taxes.
·         Asymmetric taxation systems with high tax evasion because of increased loopholes in the tax system.
·         Misuse of public funds due to corruption, bribe, and red-tapism available and the work done is completed with great difficulty.
 
Classification of Public Debt 
Internal Debt:
·         They are the public debt borrowed from within the country.
·         Major sources of funds for internal debt include commercial banks and financial institutions.
·         Here the government obtains finance by borrowing and not by creating de novo. It is rarely spent on goods and services.
  
External Debt:
·         It is when debt is taken from individuals and organizations living outside the country.
·         Here borrowing is from commercial banks, governments or international financial organizations.
  
Productive Debt:
·         These are those debts that are used to generate income from sources such as railway, plans for electricity, plans of irrigation, etc.
·         The income generated from such plans can be used for the payment of yearly interest and for the payment of principal. Such debts put pressure on the taxpayer and the government.
  
Unproductive Debt:
·         Such debts are incurred on assets that do not generate income. In such debts at some point, there are losses of interest also.
  
Redeemable/Terminable Debt:
·         These are those debts in which the government promises that they would pay back the debt on a fixed date later. These debts are also called terminable debts.
  
Irredeemable Debt/Perpetual Debt:
·         These are those debts that are done without any promise to be paid back later.
·         When debts are not paid back on time then the governments decide on specific arrangements to pay back the debt such as whether such debts need to be paid back from the taxable income, etc.
  
Funded Debt:
·         Such debts are long term in nature. Payment of these debts is to be done within one year or it can be possible, not to give any promise.
  
Unfunded debts:
·         Such debts are given for three or six months and their time period is not more than one year such as treasury bonds, etc.
  
Short Term Debt:
·         It is when the government takes debt for a short period. These debts are paid back within a year that is to be taken to complete the tenure of debts.
  
Long Term Debt:
·         It is when the government takes debt for a long period of time. The period of giving it back is not fixed. In this type of debt, the giver got regular interest.
  
Advantages of Public Debt:
·         It increases the money supply that facilitates various industries in the country to increase production which in turn increases the national standard of life.
·         It helps to counter various man-made (inflation, etc) and natural calamities (floods, landslides, etc).
·         It is especially helpful for developing countries to allocate resources in various sectors of the economy.
·         Equitable and suitable distribution of debts take place which promotes harmony and cooperation in public.
·         Public debts are also regarded as secure sources of investment.
·         It also helps in various non-economic benefits to nations such as better international relations between friendly nations.
  
Disadvantages of Public Debt:
·         There is increased misuse of the resources of the country as a large part of it is given as interests to foreign nations.
·         There is a fear of going bankrupt in the near future especially in case of a global economic crisis.
·         Extravagant spending can happen when resources are available easily. For instance, Greece had a debt to GDP ratio of 160% in 2009 due to extravagant spending.
·         There can be international pressure and political interference in the domestic policies of the debtor nation.
·         Increased burden of repayment on citizens in the form of increased taxation.
·         Slower economic and weak economic development
Excessive public debt can lead to a higher premium in interest rate, this leads to a crowding effect where the amount of private investment in the economy and the overall growth of the economy is impacted. Although it stimulates aggregate demand in the short term but if not taken care of can lead to spiralling losses in the economy of a nation.

Mains Question:
  Q: India must reduce its public debt ratio to build economic resilience- Analyse.