Public Debt in India

Topics: Public finance, Tax, United States public debt Pages: 16 (5798 words) Published: November 19, 2010
This report deals with the basic understanding of Public debt, what it comprises of and how it is managed and why does the government resort to public borrowing. Various forms of public debt have been discussed to facilitate better understanding of the concept. We have also attempted to analyze the impact of certain macro economic variables on the public debt in our country. For this purpose, we have used the “SPSS 13.0 for windows” as a tool to carry out the regression analysis.



Public debt in india
1.1To identify what is public debt and why governments opt for public debt 1.2To understand the classification of public debt
1.3To understand the economic implications of public debt
To develop a regression model and analyse the impact of certain macro economic factors on public debt 2.BACKGROUND
We already know that the problem of resource mobilization is causing a concern in present times in achieving a self-reliant economy. The government finances its expenditure through conventional sources like taxes, public borrowing or printing money. With the government Undertaking programs of planned economic development on a large scale, it is not possible to meet the related expenditure either entirely through taxation or creation of new money. There is a certain limit beyond which revenue from taxation cannot be generated as it would affect the level of investment, production in the country and people’s paying capacity. Also financing the programs thru creation of new money beyond a certain level becomes inflationary. Hence, resorting to public borrowing as a method of resource mobilization has become an increasing phenomenon in recent times. Public borrowing helps in discouraging unproductive expenditure and diverts the savings of the people for capital formation, financing new developmental projects etc. In this report, we shall discuss the meaning of public debt and the reasons due to which the government resorts to public borrowing. Also, the types of public debt shall be discussed. The report also examines the impact of certain macro economic factors on public debt in India. This has been done by developing a model which identifies the variables which impact the public debt and then running the Regression analysisWe have developed a model to understand the effect of various factors on the amount of public debt in the financial year.

In this model Public debt is taken as a Dependent variable and prime lending rate, budget deficit, public expenditure (in social sector-education), tax estimate, and gross domestic production at factor cost are taken as independent variables. These independent variables are taken to know their influence over public borrowing of Indian government. Following statements describes meaning and their influence over public borrowing- Prime lending rate- It is a rate interest at which banks lend to customers Revenue deficit- It occurs when expenditure is more then the revenues. It is calculated by total revenue minus total expenditure. Government finance its revenue deficit by going for borrowings, hence public debt is directly proportional to the revenue deficit Public expenditure- It’s the amount of government expenditure that is done over public. It is one of the factor which determine the amount of public debt. We are taking public expenditure in social sector specially in education sector. As expenditure on education does not provide immediate returns, so spending on it also total public debt. Tax estimate-It’s the amount government estimates to collect from taxes. While preparing budget it determines planned public debt to be taken. Gross Domestic Product (at factor coast)- Gross domestic product at factor cost is the value at factor cost of the product, before deduction of provisions for the...
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