Money Burden And Real Burden Of Public Debt Are Often
Money Burden And Real Burden Of Public Debt Economic Discussion

Meaning :

Indirect money burden If the external burden is utilized for productive purpose such as building roads, channels, power projects e.t.c. And establishing industries, this will increase employment, income and production. Its monetary burden will not be heavy because the payment of the principal and interest will be more than compensated by the benefits flowing from productive projects. The direct money burden of public debt consists of the tax burden imposed on the public and it is equal to the sum of money payments for interest and the principle components. In the case of an internal debt, there will be no direct money burden because all the money payments and receipts cancel out. The direct money burden of an external debt is measured by the total sum of money payments to the creditor. The direct real burden, however, consists in the loss of economic welfare which a debtor country has to bear.

Public debt refers to the loans raised by government from within or outside the country. Every govt. has to borrow when its expenditure exceeds its revenue. The borrowing or taking loans by the govt Is known as public debt.
Comparison between Public and Private Debt :
1. Compulsion :- The government can compel the people or institution in a country to lend funds to it in case of war, economic crises or any other emergencies but no private individuals can force or compel another private individual to lend them money
Real

2. Repudiation :- Under abnormal conditions the govt. can refuse the payments of loan taken by it from people but the private individuals cannot do so under any circumstances.
3. Time Period :- The government can borrow from public for longer periods because it is a permanent institution and people have faith in it. Private individual can barrow for short period of time due to risks involved on the part of the lender.
4. Rate of interest :- Because of its high credit worthiness government can borrow at lower rate of interest but it is not so in case of private borrower who has to pay a very high rate of interest because risk is involved in it.
5. Sources :- The government can take loan within the country and also from abroad but a private borrower can borrow only from within the country.
6. Mode of Payment :- The government repays its loan by taxiing the people but in case of private debt the borrower has to repay loan out of his own saving.
7. Effect on the economy: - Public debt makes its effect on production distribution of income and wealth in country but private loans make no such effects due to its micro nature.
Need for public debt :
In recent times government have been barrowing huge sums both internally and externally for the following reasons.
1. Deficit budget: - The government may borrow to cover budgetary deficit on account of large expenditure incurred on administration and for financing unforeseen events like floods famines epidemics.
2. To finance war: - Modern wars are very costly they cannot be financed unwarily through taxation thus public debt becomes necessary.
3. Natural calamities :- Natural calamities like earthquake, flood, famines etc. lead to increase in government expenditures in order to provide relief to the victims. It necessitates huge public barrowing by the government.
4. Economic development :- Public debt is considered a very important tool for the development of a country. Both developed and developing countries borrow for economic development. Developing countries do not have sufficient resources to finance their plan they therefore borrow not only from within the country but also from foreign sources for the development of agriculture, industry, power, transport communication etc. Developed countries also borrow to modernized their infrastructure facilities like roads, railways power plant etc.
5. To finance Public enterprise :- Every country whether a socialist economy or missed economy runs certain public enterprises like railways, postage and telegrams, power work et. Which require large funds The government can meet them only through public borrowing rather than by taxation.
6. To check economic stability :- Government borrows to stabilize, to control inflationary conditions. The govt. borrows to take away excess money supply from the public. Since public borrowing is voluntary. This is a better method then raising taxes. Because loans from public do not increase the cost of production. Public borrowing also helps to lift the economy from depression. During a depression ideal funds lying with the bank govt. borrows in order to spend on public work programmers.
Who pays the burden of public debt

7. To provide foreign exchange :- In case of deficit in the balance of payment. Foreign exchange is needed to correct it. In such a condition government borrow from foreign countries as well as from international financial institution in the form of foreign exchange..
8. Soft Revenue option :- With increase in public expenditure government needs a lot of fund. Taxation is a source of income for the government but it cannot be increased at a very high rate to meet the expenses because it pinches a lot to the people. Therefore many a limes government chooses soft loan option of meeting its increasing expenditure by raising loans and thereby saving itself from public opposition.
Sources of Public debt :
There are 2 main sources.
(1)Internal (2) external
(1) Sources of internal debt :- It refers to govt. loans floated in capital markets within the political boundaries of the country . the main sources of internal borrowing are:
i) Individuals.
ii) Banking & non-banking institutions.
iii) Central Bank.
Sources of external debts:-
It refers to govt. loans floated in foreign capital market. The main sources are.
i) Foreign governments.
ii) International Monetary agency like world bank IMF, International finance corporation international development association.
Structure or classification of Public debt :
(1) Internal & external debt
(2) Productive & unproductive debt:-
Productive debt is defined as a loan, which is used for project which yields an income to the government like railways, construction, irrigation, power etc.
Unproductive debt is defined as that loan which does not yield any income to the govt. like debt for natural calamities and to finance war etc. this debt is also known as dead weight debt.
(3) Redeemable & Irredeemable debt :
Redeemable debt refers to that loan which govt. promises to pay off at some future date. The interest on this loan is paid by the government regularly half yearly or annually. When the debt matures the govt. pays back the principal amount to the lender.
Irredeemable debt is that loan in which the principle amount is never returned by the government although the interest is paid regularly for the period of its duration.
(4) Short term and long term debt.:-
Short term debt is defined as that debt which may mature within a period of 3 to 4 months. This debt is like treasury bills & advances from central bank. Interest on such loans is generally low.
Long term loans are repaid in a long period say roughly after 10 years or more. Usually such debt bears a higher rate of interest.
(5) Funded and Unfunded debt :-
Funded debt is a long term debt whose payment is made at least after a year. In order to repay a debt fund is created in which some money is deposited by the government and the debt is paid out of this fund at the time of maturity.
Unfunded debt is for short period or less than a year. The govt. does not create any separate fund to repay the debt. Treasury bills are unfunded debt.
(6) Voluntary & compulsory debt :-
Voluntary debt is defined as that debt which is paid without any legal enforcement in this the people voluntarily or willingly subscribe to govt. loans. In fact ,all public loans are voluntary.
Compulsory debt are those debt which are forcibly taken by the government. Such loans are taken only during wars and national emergencies.
(7) Marketable and Non-Marketable debt.
Marketable debt is defined as one in which the securities are negotiated in open market. for example, all types of securities sold in the secondary market
Non- Marketable loans are such loans where securities

Money Burden And Real Burden Of Public Debt