PUBLIC DEBT AMD FINANCIAL ADMINISTRATION 

Public debt - country's gross govt debt is the financial liabilities of the
government sector.
    When a govt borrow, it gives birth to public debt. Govt can take debt from
banks,organisation, business houses and the people.

Sources of public debt 

1. Dated govt securities (G-secs): these are long term securities and carry a
fixed or floating interest rate which is paid on the face value, payable at fixed
time periods (usually half yearly) .
2. Treasury bills (T-bills): These are money market instruments issued by
government of India and are presently issued in 3 tenors, namely 91days,
182days, 364days.
3. External assistance: These can be obtained from foreign commercial
banks, foreign government, international financial institutions like IMF, world
bank.
4. Short run borrowings: liabilities that represent money borrowed from bank
or other institution to fund ongoing operations of a business that will come
due within a year.

Effects of public debt 

Positive effects: An increase in public debt will help to stimulate aggregate
demand and output, among others via employment generation and productive
investment.
     However, this relation is only applicable in the short run.
Negative effects: 
1. Lower national savings and income. 
2. Higher interest payments, leading to large tax hikes and spending cuts.
3. Decreased ability to respond to problems.
4. Greater risk of fiscal crisis.

Methods of debt redemption- 

1. Refunding : of debt implies that issue of new bonds and securities by govt
in order to repay matured loans.
2. Conversion:  of p.d implies changing existing loans before maturity into
new loans at an advantage in service charges.
3. Surplus budget: Quite often, surplus budget may be utilised for clearing off
public debt.
4. Sinking funds:  It is fund created by govt and gradually accumulated every
year by setting aside a part of current public revenue so as to pay off funded
debt at time of maturity. 
    Most systematic method of debt redemption.

Public budget - Refers to annual financial statement (article 112 of the Indian
constitution) that denotes it's anticipated expenditure and expected revenue
generation in a fiscal year .
Types of public budget -
Balanced budget - government's estimated expenditure tallies with or equal
it's estimated receipts or revenue in particular fiscal yr.
Surplus budget- estimated receipts or revenue exceeds estimated public
expenditure.
Deficit budget- estimated expenditure exceeds govt's estimated revenue or
receipts .

Economic and functional classification of  budget 

The economic classification identifies the type of expenditure incurred, for
example, salaries, goods and services, transfers and interest payments, or
capital spending.
The functional classification categorizes expenditure according to the
purposes and objectives for which they are intended. A functional budget is a
budget which relates to any of the functions of an undertaking, e.g., sales,
production, research and development, cash etc.