The loan, borrowings made by the Government from public, organizations, institutions is known as public debt. When the expenditure of the Government is more than its revenue, Government will go for public borrowings.
Classification of Public Debt: The public debt can be divided as follows :
a. Internal debt: It is debt borrowed by the Government from the sources available within the country. It includes internal borrowings, market loans, all treasury bills issued by RBI, State Governments, Commercial banks, etc. it is also known as loan taken on negotiable securities.
b. External debt: It refers to all those borrowings of Government from sources available outside the country. It includes loans taken by Government against non-negotiable instruments, non-interest bearing securities which are issued by international institutions like IMF, World Bank, IBRD, ADB, IDA, etc. Loans taken from IMF trust fund is also a part of external debt.
c. Other outstanding liabilities: It includes short term loans, loans taken against small savings schemes, Public provident fund, State provident contributions, Income tax annuity deposit schemes, interest bearing reserve funds, etc.
Public Debt as a burden: When the Government borrows more money, the public debt increases and the burden of payment of interest falls on the Government. Then the Government has to impose more taxes on the people. When more tax is levied on people, the disposable personal income of consumers falls and this will lead to reduction in consumption, savings and also national income at the end. As a result, the growth rate of an economy will be affected. So, public debt is regarded as a burden on the Government and people.
