Public Debt

Public debt refers to the total amount of money that a government owes to external creditors
and domestic lenders.
○ In India, public debt comprises all obligations of the Union government that are
required to be settled using funds from the Consolidated Fund of India.
Types:
○ External Debt: This is the portion of a country's debt owed to foreign creditors,
including foreign governments, international organisations, and private entities
outside the country.
○ Internal Debt: This is the debt owed to lenders within the country, including
individuals, banks, and other domestic institutions..

Ways to Raise Funds through Public Debt

​ Issuing Bonds: Governments issue bonds with a promise to pay back the principal
amount along with interest at a specified future date. Bonds are typically sold through
auctions or directly to institutional investors.
​ Treasury Bills: These are short-term debt instruments issued by governments to raise
funds. They have maturities typically ranging from a few days to one year and are
sold at a discount to their face value.
​ Loans: Governments can borrow directly from financial institutions, both domestic
and foreign, or through international organizations.
​ Savings Bonds: These are bonds sold to individual investors, often with attractive
interest rates and tax benefits.
​ Sovereign Bonds: These are long-term debt instruments issued by governments in
foreign currencies, usually to international investors.
Measurement of Public Debt
​ Gross Public Debt: This is the total amount of debt outstanding at a given point in
time. It includes both the principal amount borrowed and any accrued interest.
​ Net Public Debt: Net public debt is gross debt minus financial assets held by the
government, such as cash, gold reserves, and investments in other entities.
​ Debt-to-GDP Ratio: This ratio compares the total public debt to the country's Gross
Domestic Product (GDP). It's a measure of a country's ability to repay its debt relative
to the size of its economy.
​ Debt Service Ratio: This ratio represents the proportion of government revenue
allocated to servicing its debt, including interest payments and principal repayments.
​ Credit Ratings: Credit rating agencies assess the creditworthiness of governments
based on their ability to repay debt. Ratings impact borrowing costs and investor
confidence.
​ Sustainability Analysis: Governments conduct sustainability analyses to assess the
long-term viability of their debt levels, considering factors like economic growth,
interest rates, and fiscal policies

○ The Union government’s debt was ₹155.6 trillion, or 57.1% of GDP, at the end of
March 2023, with state governments adding about 28% of GDP to the overall debt
burden.
○ India's public debt-to-GDP ratio slightly increased from 81% in 2005-06 to 84% in
2021-22, and then back to 81% in 2022-23.